Environmental Policy Commons^™

Design, Trading, And Innovation, David M. Driesen

College of Law - Faculty Scholarship

This book chapter questions the conventional theory purporting to establish that environmental benefit trading encourages innovation better than comparable traditional regulation. It argues that the induced innovation hypothesis, that high costs encourage innovation, suggests that trading would lessen incentives for innovation by lowering the cost of complying with conventional approaches. The conventional theory relies upon the incentive emissions trading creates for polluters to make additional reductions in order to sell credits. But emissions trading also creates incentives for half of the pollution sources (the credit buyers) to make less reductions than they would under a traditional regulation. By focusing analysis …