«EUI Working Papers RSCAS 2012/23 ROBERT SCHUMAN CENTRE FOR ADVANCED STUDIES Global Governance Programme-18 MULTILEVEL GOVERNANCE OF INTERDEPENDENT ...»
and (c) lack of disciplines on free-riding, which call for a new global governance mechanism specifically addressing these collective action problems. While the 1997 Kyoto Protocol to the UN Framework Convention on Climate Change (UNFCCC) implemented its principle of ‘common but differentiated responsibilities’ (Article 10) by exempting less-developed countries from binding GHG reduction commitments, the ‘Durban Agreement’ of 2011 envisages replacing the Kyoto Protocol by a new treaty providing for GHG reduction commitments also by less-developed countries like Brazil, China and India that have become major polluters. But the cost-benefit calculations regarding the optimal level of GHG reduction commitments of developed and less-developed countries, as well as of individual industries and companies, continue to differ enormously. Esty&Moffa emphasize that even their proposal for a new Global Environmental Organization (GEO) cannot succeed in regulating the ‘commons problems’ without support from other international bodies like the WTO so as to ensure that the gains from global market integration are available only to those who share the burdens of ecological interdependence. Esty&Moffa describe the legal-institutional fragmentation, disagreements over burden-sharing, and the lack of US leadership impeding climate change negotiations among more than 190 UN member states. Establishment of a new GEO could mitigate some of the collective action problems.
close coordination between trade and environmental regulation of emission reductions, border tax adjustments, emission trading systems, subsidies and environment-related goods, services, intellectual property rights and dispute settlement proceedings.
These latter problems are analysed in the case-study by M. Hartmann on Decoding the Regulation of Climate Change: Carbon Emission Trading and Border Carbon Adjustments in Europe, NorthAmerica and Global Regimes (UNFCCC, WTO). Hartmann describes the transition from the worldwide recognition of climate change as a ‘common concern’ in the 1992 UNFCCC towards the progressive ‘institutionalization of polycentric regulation’ and ‘experimental regional climate change governance’ so as to fill the ‘regulatory vacuum’ at the global level (e.g. in the UNFCCC, the Kyoto Protocol and WTO law). His study focuses on regional emissions trading schemes in Europe and North-America and the complementary use of border tax adjustments; the transitional change of rights and obligations for protecting the global public good of GHG reductions is, however, paradigmatic also for the regulation of other ‘global environmental commons’ requiring a multitude of regulatory strategies and levels. The focus on market-based environmental regulation and on out-sourcing responsibilities for achieving emission reductions on behalf of states and international organizations illustrates the ‘regulatory multipolarity’ and ‘polycentric international regulatory order’ required for dealing with inter-generational, environmental problems affecting all states, billions of individuals and distorting the worldwide division of labour. The 2011 ‘Durban Agreement’, and the international dispute over the inclusion of foreign airlines into the EU’s carbon emission trading system, confirm Hartmann’s doubts ‘whether the marketization of carbon dioxide emissions accounts for an appropriate methodology of global public goods protection in the process of societal transformation’, notwithstanding the lack of political support for alternative regulatory strategies. Hartmann’s detailed comparison of European and North-American regulatory approaches identifies the numerous problems in the implementation of the EU Directive (e.g. over-allocation of permits in 2007/8, inadequate incentives for reducing CO2 emissions on larger scales) as well as in sub-federal climate change regulations at state and local levels in the USA (e.g. US refusal to accept international GHG reduction commitments and to develop a federal emission trading scheme). Hartmann explains why ‘border carbon adjustments’ may be a necessary, supplementary policy instrument and legally justifiable under WTO law, notwithstanding risks of manipulating carbon taxes for protectionist purposes. Hartmann concludes that polycentric, market-based regulation may not change individual behaviour and reduce extensive carbon emissions ‘unless external authorities impose enforceable rules that change the incentives faced by those involved’ based on a ‘transnational rule of law’ system protecting coherence between private and public, national and international levels of governance for the benefit of citizens.
J. Penca’s analysis of International Incentive Mechanisms for Conservation of Biodiversity and Ecosystem Services offers another case-study of progressive, multilevel regulation of ‘global environmental commons’, i.e. the protection of biodiversity in the context of the 1992 UN Convention on Biodiversity (CBD) as the principal framework for biodiversity protection in a highly fragmented, multilevel biodiversity regime. Like Hartmann, Penca focuses less on ‘command-and-control regulation’ than on legal, economic and other tools to incentivise the private sector contribution to the protection of global environmental commons as a decentralized instrument for implementing a global environmental treaty and reducing related collective action problems. Even though the CBD aims at protecting primarily national resources by means of instruments different from those used for climate change protection, the ‘common concern’ at protecting biodiversity is recognized. Some market-based, regulatory instruments overlap with the Kyoto Protocol’s ‘flexible mechanisms’ (like the REDD mechanism aimed at Reduced Emissions from Deforestation and Forest Degradation); they confirm the importance of involving the private sector and changing individual behaviour. Penca discusses those parts of biodiversity conservation that are considered ‘public goods’ and subject to ‘custodial sovereignty’ (e.g. certain ecosystem services) or outside national jurisdictions (like certain marine resources); she also examines the use of incentives for sustainable biodiversity management, related distributional problems (e.g. regarding ‘fair and equitable benefit-sharing’ arising out of the utilization
Introduction and Overview
of genetic resources, inadequate resources of the Global Environmental Facility), and the numerous, regulatory deficiencies of the CBD (e.g. its lack of effective enforcement provisions). As in the case of carbon emission trading systems, the increasing use of certification of environmental products, ecosystem services (like the REDD) and ‘business biodiversity offsets’, the use of environment-related codes of conduct (e.g. the Equator Principles and other Performance Standards used by the International Finance Corporation) and of ‘green development mechanisms’ illustrate that ‘there can be a business case for investing in biodiversity conservation’ and promoting private-sector integration in the CBD.
Legal limitation of market failures and governance failures The acknowledgment - in the practices not only of WHO and WIPO, but also of the World Bank and more recently the WTO - of connections between human rights (e.g. of access to food and essential medicines, rights to private property, rule of law and legal remedies) and development is likely to enhance the 'primary legitimacy' (P. Lamy) not only of promoting international public goods through UN Specialized Agencies and trade institutions; also human rights law may benefit from the discourse among economic institutions and, e.g., UN human rights rapporteurs requesting international organizations to 'respect, protect and fulfil' human rights and adjust economic rules (e.g. WTO rules on liberalization of agricultural trade) (cf. de Schutter, 2011; and the criticism of its protectionist recommendations in an open letter by WTO Director-General P. Lamy, 2011, referring also to written comments by the WTO Secretariat on an earlier draft of the report). The democratic support necessary for limiting governance failures requires more participatory and democratic governance of public goods. In the conference discussion of the case-studies, some speakers argued that the comparative analyses of international 'aggregate public goods' illustrate the policy options for limiting economic and political ‘market failures’ and other collective action problems impeding supply of public goods.
For instance, 'free-riding' can be limited by clarifying property rights and transforming public goods into ‘club goods’ administered by international organizations. Governance failures may be limited by promoting 'access rights', property rights, judicial remedies and ‘rule of law’. Just as the regulation of trade policy instruments in GATT/WTO law has been based on the 'economic theory of optimal intervention' (e.g. as developed by Nobel Prize laureate J. Meade), economics is important for regulating alternative policy instruments in environmental agreements (e.g. promotion of 'positive externalities' from the use of forests as 'carbon sinks'). Yet, many regulatory problems require supplementing the economic tools of public goods theory by complementary political and legal analyses. For example, under what conditions should ‘issue-by-issue regulation’ (pursuant to J.
Tinbergen’s theory of ‘separation of policy instruments’) be replaced by ‘issue-linkages’ in order to promote regulatory coherence and overcome disputes over the distribution of costs and benefits? How should decision-making processes be designed in order to limit the risks of ‘regulatory capture’ by organized interest groups and enhance both ‘input-legitimacy’ as well as ‘output-legitimacy’? How can agreed principles (like ‘responsible sovereignty’) and ‘common concerns’ be transformed into precise ‘duties to protect’ public goods in transnational relations vis-à-vis third countries that refuse to cooperate in global agreements?
The ‘horizontal’ as well as ‘vertical interdependencies’ between national and international monetary, trading, environmental, development and legal systems require economic, political as well as legal coordination mechanisms (as acknowledged in GATT Article XXIV and GATS Article V on regional trading systems). The failure of the G20 in offering effective leadership for concluding the Doha Development Round negotiations illustrates that many multilevel governance problems are related to lack of political support and 'public reason' at domestic policy levels. The continuing underregulation of global financial markets is also due to political disagreements as to whether regional reforms (such as the creation of a 'Systemic Risk Board' inside the European Monetary Union) offer lessons for reforming the worldwide monetary and financial system. The case-studies on carbon
emission trading systems and on private-public partnerships in biodiversity protection illustrated the importance of involving non-governmental actors for effective international trade and environmental regulation, for instance by empowering and incentivizing citizens and business (e.g. by means of land and other property rights) to use environmental resources efficiently and to act (e.g. by means of legal and judicial remedies) as advocates for decentralized enforcement of trade and environmental rules. It was argued that market-based instruments of economic regulation can complement democratic objectives of citizen-driven self-government and decentralized, self-interested enforcement of rule of law, provided there are adequate safeguards against abuses of private rights. The role of terrestrial and marine protected areas as ‘green’ and ‘blue’ carbon sinks was mentioned as example for the need to promote synergies among separate treaty regimes for promoting 'sustainable development'. Just as the WTO legal system is of crucial importance for resolving some of the collective action problems relating to energy security (e.g. by limiting quantitative restrictions, protecting non-discriminatory market access and transit trade), coordination of international trade, health protection and environmental rules is of crucial importance also for interdependent global public goods like GHG reductions (e.g. by means of carbon tariffs, non-discriminatory taxes), biodiversity and access to essential medicines. Environmental public goods illustrate the methodological importance of identifying where and how public goods are produced and consumed so that regulation can intervene directly at the source of market and governance failures without causing ‘by-product distortions’ of economic competition. The potential for avoiding multilateral collective action problems by recourse to bilateral agreements (e.g. on access to energy resources and genetic resources), or by ‘localizing’ and downscaling global challenges to smaller regional or local levels, depend on the type of public goods. National borders will continue to matter in the future as places where regulatory systems change and where domestic implementation of international rules requires democratic legitimization and protection of the rights of citizens.