International greenhouse gas emissions trading: who should be held liable for the non-compliance by sellers?

Article 17 of the Kyoto Protocol authorizes emissions trading, but the rule s governing emissions trading have been deferred to subsequent conferences. In designing and implementing an international greenhouse gas (GHG) emissi ons trading scheme, assigning liability has been considered to be one of th e most challenging issues. This article discusses a variety of the rules fo r accountability under international GHG emissions trading. It indicates th at a 'buyer beware' liability is effective only to the extent that it puts additional pressure on sellers to comply with their commitments because aft er all sellers exercise great, if not complete, control over whether or not they comply with their commitments. Because putting such a pressure on sel lers to develop effective compliance systems is not without costs to buyers , a 'buyer beware' liability should thus be imposed only in the case where non-compliance of sellers is virtually certain to occur. Moreover, in deter mining the optimal combination of these not-mutually-exclusive rules for ac countability that are discussed in the article, the marginal benefits of ad ding one rule needs to be weighted against the increased costs of doing so. (C) 1999 Elsevier Science B.V. All rights reserved.