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The Oxford Handbook of International Climate Change Law edited by Carlarne, Cinnamon P; Gray, Kevin R; Tarasofsky, Richard (24th March 2016)

Part IV Setting up the International Mitigation Regime: Contents and Consequences, Ch.12 International Market Mechanisms

Shi-Ling Hsu

From: The Oxford Handbook of International Climate Change Law

Edited By: Cinnamon P. Carlarne, Kevin R. Gray, Richard Tarasofsky

Subject(s):
Tax measures — Taxation — Climate change — Environmental disputes — Pollution

This chapter describes the role of international market mechanisms in reducing pollution and the costs of doing so. It looks into two mechanisms established by economists John H. Dales and Arthur Cecil Pigou. Dales propounded the mechanism of ‘pollution permit-trading’ which, instead of regulating pollution on a source-by-source or emitter class-by-emitter class basis, a regulatory agency from the beginning would limit the overall amount of pollution allowed. Firms could then trade amongst themselves, effectively using the market to determine which of them should be able to pollute, how much, and when. The other market mechanism is the Pigouvian tax, which is the tax levied per unit of pollution emitted. By pricing these external costs and forcing polluters to consider them in their private calculus, Pigouvian taxes force polluters to balance the social costs and their private economic benefits of polluting.

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