An Evolutionary Defense of Emissions Trading

Based on static arguments, 'standard' environmental economics considers emissions trading to be more effective and efficient than other policy instruments. However, in one section of a much broader article on sustainable development policies, Rammel and Van den Bergh (2003) argue that the economic superiority of tradable permits is not evident from an evolutionary perspective when factors like diversity, risk and path dependence are taken into account. However, contrary to their conjecture, we conclude that tradable permits are also efficient from a long-term, evolutionary point of view. Path dependence and lock-in rather provide additional, dynamic arguments in favour of emissions trading.