The Liability Rules Under International GHG Emissions Trading
18 Pages Posted: 6 Dec 2000
There are 2 versions of this paper
The Liability Rules Under International GHG Emissions Trading
Date Written: June 2000
Abstract
Article 17 of the Kyoto Protocol authorises emissions trading, but the rules governing emissions trading have been deferred to subsequent conferences. In designing and implementing an international greenhouse gas (GHG) emissions trading scheme, assigning liability rules has been considered to be one of the most challenging issues. In general, a seller beware liability works well in a strong enforcement environment. In the Kyoto Protocol, however, it may not always work. By contrast, a buyer beware liability could be an effective deterrent to non-compliance, but the costs of imposing it are expected to be very high. To strike a middle ground, we suggest a combination of preventative measures with strong but feasible end-of-period punishments to ensure compliance with the Kyoto emissions commitments. Such measures aim to maximize efficiency gains from emissions trading and at the same time, to minimize over-selling risks.
Keywords: emissions trading, greenhouse gases, seller beware liability, buyer beware liability, Kyoto protocol
JEL Classification: Q25, Q28
Suggested Citation: Suggested Citation