Government failure, rent-seeking, and capture: the design of climate change policy

Abstract

Climate change has been described as one of the biggest market failures. Less attention has been paid to the government failures associated with interventions, and the implications for the design of climate change policy. This paper sets out the main types of government failure, and shows how the processes of rent-seeking and capture help to explain both why the choice of targets and instruments has been so inefficient, and also why the resulting costs of carbon mitigation are likely to be considerably higher than the estimates provided by the Stern Review and other recent studies. Two examples are given: emissions trading and renewables policy. A number of generic conclusions are drawn about how taking account of government failures can help to improve policy design, and limit the impact of the climate change ‘pork barrel’ which existing policies have created.