Discussion Paper

Climate Change Governance: Boundaries and Leakage

Dec 8, 2009 | Michael P. Vandenbergh, Mark A Cohen

Abstract

This article provides a critical missing piece to the global climate change governance puzzle: how to create incentives for the major developing countries to reduce carbon emissions. The major developingcountries are projected to account for 80 percent of global emissions growth over the next several decades, and substantial reductions in the risk of catastrophic climate change will not be possible without a change in this emissions path. Yet the global climate governance measures proposed to date have not succeeded and may be locking in disincentives as carbon-intensive production shifts from developed to developing countries. A multi-pronged governance approach will be necessary. We identify a new strategy that will be an important component of any successful effort. Our strategy recognizes that in the context of climate change the simplified Coasian approach to pollution should be updated to include a more complete view of the options firms face in response to emissions reduction pressure and the sources of that pressure. We demonstrate how governments and non-governmental organizations can use expanded corporate carbon reporting boundaries and product carbon disclosure to harness social norms in developed countries. This informal social license pressure, in turn, will create incentives for firms to seek emissions reductions from their domestic and global supply chains. The private market pressure conveyed through supply chains will reduce leakage from developed countries, create new incentives for developingcountry firms and national governments, and play a surprisingly important role in the formation and implementation of a successful post-Kyoto global policy architecture.