Complicating Carbon Markets

There was an initiative on the ballot in Washington State, in the United States, in November 2016, to create a revenue-neutral carbon tax, beginning at $15 per tonne and gradually increasing to $100 per tonne. From the perspective of economic theory, it was an ideal way to reduce carbon emissions. While it was supported by many academics, however, it was opposed by much of the state's environmental community, not because the tax itself was insufficient, but precisely because it was revenue-neutral (New York Times Editorial Board 2016). In part due to this lack of support from environmental NGOs, it lost, garnering only 42 percent of the vote.

Several elements of this story seem notable in the context of a historical perspective on climate—and more broadly, environmental—governance. First, there seemed to be a general acceptance that the market-based mechanism of a tax was to be preferred to other mechanisms, particularly command-and-control regulation. Second, the fighting about the ballot measure within the environ-mentalist community was not about the tax per se, but about how the revenue from the tax should be distributed. Third, much of the Washington State business community supported the ballot measure, even though it would have created both new environmental regulation and a new tax. How is it that this consensus developed that climate change should be addressed through market mechanisms, and given this consensus, why is it that the versions of those mechanisms preferred in economic theory are not predominant?

There is an extensive literature on carbon markets in the context of global environmental politics (see Bernstein et al. 2010), but even so, these questions are puzzling. Three new books, despite not being about the Washington State ballot measure, speak in distinct ways to different aspects of these questions. Kaija Belfry Munroe, in Business in a Changing Climate: Explaining Industry Support for Carbon Pricing, argues that when climate regulation looks inevitable in the medium term, business will prefer the certainty of forms of governance they are familiar with to the risk of regulation that they cannot plan for. Leigh Raymond, in Reclaiming the Atmospheric Commons: The Regional Greenhouse Gas Initiative and a New Model of Emissions Trading, studies the normative underpinnings of cap-and-trade systems in the United States. Janelle Knox-Hayes, in The Cultures of Markets: The Political Economy of Climate Governance, looks more broadly at the differences across geographies and times in what markets mean, and the cultures in which they are embedded. All three books complicate the dichotomy of market versus command and control and undermine the assumption that markets mean what economists say they mean.

Beyond their individual research and arguments, these books add to the literature in three ways. The first is simply by addressing new developments in particular carbon markets in the last decade. The second is by problematizing the normative and behavioral underpinnings of rationalist ideas of market behavior. The third is by bringing a breadth of disciplinary perspective to the study of carbon markets: Raymond studies public policy mostly in a domestic United States context, Belfry Munroe is a professor of Canadian Studies, and Knox-Hayes is a geographer.

In the first of the books, Business in a Changing Climate, Belfry Munroe asks why the Canadian business community, and in particular those elements of it most directly involved in carbon-intensive industries, abruptly changed its stance on carbon regulation between 2006 and 2008. In 2006, most industry associations in energy-related and energy-intensive industries voiced clear preferences for voluntary standards rather than authoritative regulation of any kind. By 2008 these associations by and large preferred market-based mechanisms (understood as either cap and trade or a carbon tax) to continued uncertainty about climate governance. This is a particular...