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Summary of the main findings

The Subsidisation of Heavy Polluters under Emissions Trading Schemes

Elena de Lemos Pinto Aydos

Chapter 7 presents a summarised version of the key findings of this book. While the EU ETS, the AUS CPM and the NZ ETS have all subsidised emissions-intensive industries, the consequences of this regulatory model have, in general, escaped the scrutiny of legal scholars. The book closes with an important message, that despite formally participating in ETSs, many heavy polluters are not yet paying their fair share of the carbon price. Keywords: Emissions Trading – EU ETS – Free Allocation – World Trade Organization –Agreement on Subsidies and Countervailing Measures

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Eric R. Claeys

“Sparks cases” arose in the late 19th century, when sparks from newly laid railroads caused fire damage to adjacent landowners. Sparks cases have become a staple example in law and economics scholarship over the last generation. This chapter uses those cases to contrast the differences between leading approaches to law and economics and Austrian economics. Sparks cases illustrate concretely important differences between welfare-maximizing and order-securing legal theories of regulation. Many leading law and economic works assume that legal actors can maximize the welfare created from incompatible resource disputes; in sparks cases, such theories assume that legal actors may and should choose the regime of tort liability most likely to maximize the joint product from a railroad right of way and adjacent land. Austrian economics focus on basic ordering, for it presumes that information shortfalls, subjective value, and changing resource uses all make it prohibitively difficult for legal actors to identify the highest and best uses of resources in conflict. In such constraints, the tort principles that regulate sparks disputes should be designed around simple and clear property boundaries, so that railroad operators are strictly liable for fires caused on land owners’ lots by sparks from their trains. This basic Austrian critique may be applied in other, more recent, and more complex fields of regulation. If scholars hope to expose a wider audience of legal scholars to this critique, however, they must integrate Austrian themes better into the normative frameworks and scholarly categories applied by legal scholars.

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David Skarbek

The legal centrism hypothesis argues that the state is necessary to define and enforce property rights, and in the absence of state-based institutions, self-governing groups will be incapable of engaging in economic exchange and extended commercial enterprise. This chapter provides evidence against legal centrism by examining the operation of the Nuestra Familia prison gang. The gang protects inmates’ property rights and facilitates trade in contraband in California prisons, and operates an illicit business enterprise in the free world from behind prison walls. An important reason for the success of its organization is a system of information transmission mechanisms between gang members in different facilities. These mechanisms allow self-governance among people with high discount rates and criminal histories.

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Edited by Todd J. Zywicki and Peter J. Boettke

The original contributions to the Research Handbook provide an introduction to the application of Austrian economics to law. The book begins with chapters on the methodology of law and economics. Further chapters discuss key concepts in Austrian economics – dynamic competitive processes, spontaneous order, subjective value, entrepreneurship, and the limited nature of individual knowledge – as they relate to topics in evolutionary law (social rules, self-governance, dispute resolution) and basic law (torts, antitrust, civil procedure, business and family law).
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Reconsidering the eligibility thresholds for the free allocation of permits

The Subsidisation of Heavy Polluters under Emissions Trading Schemes

Elena de Lemos Pinto Aydos

Chapter 4 focuses on carbon leakage in practice and real life examples of the use of free allocation as an industry assistance measure. It demonstrates that jurisdictions linking independent ETSs would benefit from harmonising the free allocation methodologies in order to minimise the competitiveness concerns and to reduce the trade distortions and other impacts inherent to the free allocation system. It proposes a review of the general thresholds in order to assess the exposures to carbon leakage so as to improve the effectiveness and fairness of the ETSs. The two final key recommendations are the removal of the sole trade-exposure factor from the quantitative assessment in the EU ETS and increasing the stringency of all the thresholds to determine emissions-intensity. Keywords: carbon leakage – free allocation – emissions intensity – trade exposure – linking – competitiveness

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Real world emissions trading schemes: challenges and lessons learnt

The Subsidisation of Heavy Polluters under Emissions Trading Schemes

Elena de Lemos Pinto Aydos

Chapter 3 introduces the three case studies, that is, the European Union Emissions Trading System (EU ETS), the New Zealand Emissions Trading Scheme (NZ ETS) and the Australian Carbon Pricing Mechanism (AUS CPM). The chapter provides the reader with a basic understanding of the key elements of each ETS, such as the coverages, emissions caps, governance regimes and links with other schemes. It also reflects on the main achievements and challenges particular to each scheme. For example, the significant problems with surplus emissions permits experienced by the EU ETS, the process that led to the repeal of the CPM in Australia and the distinctiveness of the NZ ETS, which has been resilient and stable, despite significant changes in the country’s approach towards international climate change negotiations. Keywords: European Union Emissions Trading System (EU ETS) – New Zealand Emissions Trading Scheme (NZ ETS) – Australian Carbon Pricing Mechanism (AUS CPM)

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Martín Krause

Austrian economists have been ambivalent on the foundational contributions of Ronald Coase to modern law and economics. One side supported a Lockean natural rights view based on the property over one’s own body as a determinant of rights and considerations of justice. The other side supported a Coasean efficiency view, with a Hayekian evolutionary perspective. Our conclusion will be that both are found in informal slums, but informal solutions of disputes among neighbors generally follow a “rights” approach and do not intentionally look for efficiency.

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Paying the Carbon Price

The Subsidisation of Heavy Polluters under Emissions Trading Schemes

Elena de Lemos Pinto Aydos

Paying the Carbon Price analyses the practice of freely allocating permits in Emissions Trading Schemes (ETSs) and demonstrates how many heavy polluters participating in ETSs are not yet paying the full price of carbon. This innovative book provides a framework to assist policymakers in the design of transitional assistance measures that are both legally robust and will support the effectiveness of the ETSs whilst limiting negative impacts on international trade.
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Gerald J. Postema

Hayek worked out a systematic explanation of the emergence and dynamics of informal social rules that accounts for the social rules and institutions we see in terms of deeper levels not obvious to the casual observer. The explanation relies on three fundamental ideas: the idea of a rule (and rule-following), of spontaneous order and of evolution. These ideas are interdependent parts of a single, integrated explanatory scheme, intended to show ordered elements of social life are not the product of design, but rather are the unintended consequences of impersonal and external forces operating on behavior and thought of human beings. Hayek’s theory of social evolution offers an explanation of the emergence and establishment of social rules in a group. To do this he must explain: (i) how it is that rules emerge; which (ii) are social rules; and (iii) the same rules across individuals; which (iv) then spread through the group as a whole. It is argued that he fails in the second and third of these tasks.

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Henry N. Butler and Larry E. Ribstein

This chapter shows that innovation depends at least as much on how laws are made as on a priori analyses of the optimal content of those laws. Legal process therefore is critical to the development of efficient policies for fostering innovation and growth. Of particular importance is whether the U.S. legal system promotes an efficient market for law. This analysis builds on central insights of Austrian economics and the role of institutions in supporting market processes. It shows how particular legal institutions can foster innovation by supporting a market for law.