Defining Limits: An Institutional Development Approach to Cap and Trade Programs

Abstract

"In the last two decades, cap and trade programs have become an increasingly common institution of resource management, and some analysts have touted them as the ideal solution for sustainable governance of scarce natural resources and overloaded pollution sinks. Cap and trade programs are generally attractive because they offer the potential to achieve both sustainable resource use and economic growth on a long-term basis. Despite this potential, however, the effectiveness of actual cap and trade experiments has been mixed and social scientists are still struggling to explain why these programs are successful in some instances but not others. This paper addresses this question and will argue that the effectiveness of cap and trade programs is primarily determined by their political economic origins. The political economic origins of cap and trade programs are crucial because they determine the amount of political resistance that these programs will face in their introduction and implementation. The larger the relative difference between an established political economy and the cap and trade political economy that is intended to replace it, the more political resistance will be faced, and the more problems that will develop in the design and administration of cap and trade programs. In this brief paper, the essential features of cap and trade programs are outlined and the political economic origins of cap and trade policies are explored as a means of outlining the broad structure of this argument."