There is growing evidence that providing businesses and consumers with market-based mechanisms for addressing environmental problems can achieve equal or better compliance while reducing costs and spurring technological innovation. In the context of climate change, countries have agreed to use several market-based mechanisms in implementing greenhouse gas emissions reductions-from emissions trading similar to that used in the United States to reduce sulfur dioxide emissions to more experimental measures such as joint implementation and the Clean Development Mechanism.

This report, which analyzes market-based environmental policy instruments, is the third in a series by the Center. The Pew Center was established in 1998 by the Pew Charitable Trusts, one of the nation’s largest philanthropies and an influential voice in efforts to improve the quality of America’s environment. The Center brings a new cooperative approach and critical scientific, economic and technological expertise to the global climate change debate. The report was prepared as an input for the participants of two international conferences designed to promote a trans-Atlantic dialogue on market-based instruments and their use in mitigating global climate change. Recognizing the critical role of business in both shaping and applying market-based mechanisms, the Pew Center is working to bring businesses from both the United States and Europe together to discuss ways to do so.

The report reviews U.S. and European experience with market-based mechanisms and the ways the Kyoto Protocol on Climate Change utilizes these mechanisms. The report finds that properly designed rules for the operation of these mechanisms can provide economic and environmental integrity and signal to business and governments that any trades undertaken in accordance with the system will be valid and of value. Key elements to the success of such a system will be measurement, transparency, accountability, fungibility and consistency.

The Pew Center and its Business Environmental Leadership Council believe that climate change is serious business. Implementing emissions trading and other market-based mechanisms will be part of a serious response to the climate change problem.