Green clubs in building block climate change regimes

Abstract

Climate change is the consequence of a market failure, with private actors’ incentives misaligned on a global scale and across multiple generations. Government policies to address climate change remain inadequate and the near term prospects are suspect. Analysts have turned their attention to finding alternative approaches to reducing greenhouse gas emissions. Green clubs offer a potential institutional mechanism for reducing greenhouse gas emissions, but to be effective they must be designed to fit their circumstances. An effective green club solves a market or quasi-market failure among firms and their stakeholders. Focusing on the market and nonmarket strategic imperatives for green clubs identifies several important considerations for improving the effectiveness of green clubs. Green clubs addressing climate change are more likely to be effective if they provide potential participants with a private benefit they are unable to achieve through other means and when the private benefits participants receive are tightly linked to the environmental benefits the club produces. Analyzing green clubs through this lens suggests that environmental certification club goods are more promising candidates than environmental technology club goods.