The Political Economy of Carbon Pricing: Lessons from the Mexican Carbon Tax Experience for the Mexican Cap-and-Trade System

Price-based climate change policy instruments, such as carbon taxes or cap-and-trade systems, are known for their potential to generate desirable results such as reducing the cost of meeting environmental targets. Nonetheless, carbon pricing policies face important economic and political hurdles. Powerful stakeholders tend to obstruct such policies or dilute their impacts. Additionally, costs are borne by those who implement the policies or comply with them, while benefits accrue to all, creating incentives to free ride. Finally, costs must be paid in the present, while benefits only materialize over time. This chapter analyses the political economy of the introduction of a carbon tax in Mexico in 2013 with the objective of learning from that process in order to facilitate the eventual implementation of an effective cap-and-trade system in Mexico. Many of the lessons in Mexico are likely to be applicable elsewhere. As countries struggle to meet the goals of international environmental agreements, it is of utmost importance that we understand the conditions under which it is feasible to implement policies that reduce carbon emissions.

National polarization and international agreements

The network of international environmental agreements (IEAs) has been characterized as a complex adaptive system (CAS) in which the uncoordinated responses of nation states to changes in the conditions addressed by particular agreements may generate seemingly coordinated patterns of behavior at the level of the system. Unfortunately, since the rules governing national responses are ill understood, it is not currently possible to implement a CAS approach. Polarization of both political parties and the electorate has been implicated in a secular decline in national commitment to some IEAs, but the causal mechanisms are not clear. In this paper, we explore the impact of polarization on the rules underpinning national responses. We identify the degree to which responsibility for national decisions is shared across political parties and calculate the electoral cost of party positions as national obligations under an agreement change. We find that polarization typically affects the degree but not the direction of national responses. Whether national commitment to IEAs strengthens or weakens as national obligations increase depends more on the change in national obligations than on polarization per se. Where the rules governing national responses are conditioned by the current political environment, so are the dynamic consequences both for the agreement itself and for the network to which it belongs. Any CAS analysis requires an understanding of such conditioning effects on the rules governing national responses.

Implementation of International Environmental Law

International environmental law is a key governance instrument for the protection of the environment. Countries take on a range of obligations when they join multilateral environmental agreements. This chapter presents a comparative assessment of the implementation of international environmental law in 13 countries for four agreements dealing with pollution and conservation. It offers an empirical assessment based on the Environmental Conventions Index (ECI) developed at the Center for Governance and Sustainability at the University of Massachusetts, Boston, and compares performance across four key categories: regulation, management, information, and technical measures. The analysis establishes a baseline for assessing the implementation of international environmental law and explaining the impact of national characteristics, policies, and actions on the fulfillment and effectiveness of international environmental agreements.

Term Limits and Environmental Treaty Commitments

How does political accountability in democracies affect leaders’ incentives for international cooperation? We consider how term limits should affect international environmental agreement (IEA) participation. Pursuing environmental protection as a public good coincides with the political survival incentives of democratic leaders. Term limits decouple leaders’ policy priorities from their political survival incentives, discouraging IEA participation. However, prioritization of environmental concerns increases with economic development. As such, the effect of term limits on IEA participation should be strongest in rich democracies. We test these arguments using data from the International Environmental Agreements Database from 1970 to 2011. Democratic leaders, particularly in rich democracies, sign fewer IEAs when freed from the reelection motive. We also consider the potential that term limits could favor IEA participation if doing so aligns with a leader's preferences. This potential should be greatest in poor democracies where citizens place less emphasis on environmental protection, though we find little evidence for this expectation. The findings have important implications for understanding the determinants of IEA participation and the political accountability–international cooperation relationship. Whereas some argue that electoral incentives that cause leaders to favor present over future concerns undermine environmental cooperation, our results suggest that political accountability in democracies can promote treaty participation.

Part VII Inter-linkages with Other Regimes, Ch.43 Trade

This chapter reviews the interactions between international trade law and environmental protection. It begins by explaining how trade and environmental protection are physically interlinked, before offering an account of the evolution of the trade and environment debate. The chapter then examines the relationship between multilateral environmental agreements (MEAs) and trade, followed by an analysis of questions that have arisen in assessing the compatibility of environmental measures with trade law. International trade law may have a ‘chilling effect’ on the adoption or effective implementation of international environmental agreements. Conversely, environmental policies employing trade restrictions can become ‘green protectionism’ and even ‘eco-imperialism’. The chapter explores two emerging developments of relevance for the trade and environment debate, including the rise of regional trade agreements and the growing importance of climate change-related disputes. It concludes with a critical assessment of the prospects for strengthening coherence between international environmental and trade law.

Part II Analytical Approaches, Ch.9 International Relations Theory

This chapter evaluates the importance of international relations (IR) in international environmental law (IEL). IR theory and empirical studies provide insights into how international environmental agreements may be modified to effectively address environmental threats. Key issues include whether sanctions are essential for compliance and effectiveness, and whether the choice of hard law rather than soft law makes a difference. Reform strategies either make explicit assumptions about how international law affects state behaviour, or such assumptions remain implicit. Either way, IR theory throws light on the relationship between international law and state behaviour. The chapter then explores the relationship between power and IEL. It also addresses legitimacy and democratization, and examines how scientific knowledge can be incorporated into IEL.

Part IV Normative Development, Ch.24 Multilateral Environmental Treaty Making

This chapter reflects on multilateral environmental treaty making. From its inception, international environmental law has consisted primarily of treaties and other forms of negotiated instruments, which offer several advantages over more informal mechanisms of international cooperation. Traditionally, treaties were comparatively static arrangements, memorializing the rights and duties of the parties as agreed at a particular point in time. Today, environmental agreements are usually dynamic arrangements, establishing ongoing regulatory processes. The result is that, in most environmental regimes, the treaty text itself represents just the tip of the normative iceberg. Most norms are adopted through more flexible techniques, which allow international environmental law to respond quickly to the emergence of new problems and new knowledge. The chapter then introduces the basic types of international instruments, analysing why states negotiate and accept them. It describes the process by which agreements are created, from the inception of negotiations to the adoption and entry into force of the resulting instrument. The chapter also explores various design issues in developing international environmental agreements.