Global Environmental Regulation: Instrument Choice in Legal Context

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Abstract
A central issue in environmental law is the choice among regulatory instruments. From Pigou to Cease to the present, scholars have debated the relative merits of liability rules, property rules, technology standards, taxes, subsidies, and tradeable allowances. An emerging scholarly consensus in economics and law would crown taxes as the presumptive optimal instrument for controlling environmental externalities. But this debate has largely been confined to the context of national law. In this Article, Professor Wiener takes the choice of regulatory instruments to the global level. He contends that the choice of optimal regulatory instrument is contingent on the underlying legal system of the regulatory polity. The Article focuses on two salient dimensions of variation across legal systems: the voting rule for adoption of law, and the implementation structure for execution of law. Whereas national regulatory legislation is generally adopted under a majoritarian voting rule that can compel sources of externalities to comply and executed through a federalist structure which can impose constraints directly on sources, global regulatory treaties are generally adopted under a Voluntary Assent voting rule that requires source countries to choose to participate and executed through a jurisdictional structure that requires regulation to be implemented by nation-state intermediaries. Professor Wiener argues that the fundamental differences along these two dimensions between the national and global legal systems mean that tradeable allowances, not taxes, are the presumptive optimal instrument for environmental protection at the global level. He shows that the Voluntary Assent voting rule for international treaty law necessitates side payments to engage reluctant sources of externalities-a "beneficiaries pay" rather than a "polluters pay" approach-and that making such side payments is more "participation efficient" under tradeable allowances than under taxes. In addition, he demonstrates that implementation by nation-states makes taxes more costly to monitor than tradeable allowances. In concert, these factors counsel selection of tradeable allowances, nor taxes, to address global environmental problems such as greenhouse warming and biodiversity loss. More generally, Professor Wiener argues that whether the regulatory polity is the entire planet or a local neighborhood, the prevailing voting rule and implementation structure will powerfully affect the relative mel its of regulatory instruments. He asserts that the debate over instrument choice needs to be reconceived with more explicit attention to the assumed underlying legal framework. The Article seeks to demonstrate that in the design of international environmental law, economics matter; and, at the same time, in the economics of regulatory design, law matters.

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