David Victor Quoted in Council on Foreign Relations Blog
Markets vs Governments in Energy Policy
03/21/2011
Michael Levi,
Council on Foreign Relations Blog
I started reading Dani Rodrik’s engaging new book, The Globalization Paradox, last week. Rodrik makes his core point early and often: Too many policymakers and economists assume that markets and governments are substitutes; much more often, though, they’re complements. As he notes, this is particularly important to remember at the international level, where governance is inherently weak. Students of energy and climate policy would do well to keep this powerful idea in mind.
The simplest instance in the traditional energy world involves financial speculation. Too many people have knee jerk reactions against any type of meaningful regulation of financial trading in energy-related products, believing that more government means less market. But as Daniel Ahn argues in a recent CFR working paper, better regulation and appropriate government intervention can actually enhance the credibility and attractiveness of commodity markets, ultimately enlarging rather than shrinking them.
The classic climate policy example comes from the debate over global cap-and-trade. As David Victor argued persuasively in The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming, policymakers made a big mistake in trying to create international carbon markets where they lacked sufficiently robust governance. The result was distrust in the system, and, over time, hesitancy in expanding it too far.
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David Victor is Director of the Laboratory on International Law and Regulation (ILAR). Looking across a wide array of issues from environment and energy to human rights, trade and security, the Laboratory explores when (and why) international laws actually work.
