Climate as an Innovation Imperative: Federalism, Institutional Pluralism and Incentive Effects

To combat climate change successfully will require innovations in regulatory design and technology. This article was prepared for the September 2010 Yale Law School and Unitar Conference on "Strengthening Institutions to Address Climate Change and Advance a Green Economy." The article focuses on the innovation incentive effects of national legislation that could, in the alternative, either preempt or displace climate-related actions of state and local governments or federal officials under other laws, or welcome climate actions by others. These are choices regarding federalism and institutional pluralism (or diversity). The challenge is to create effective climate regulation and a robust trading market in GHG allowances without the risks of reliance on a single regulator. Compared to an institutionally diverse regulatory regime, a unitary climate regulator would be more vulnerable to implementation failures, rigidity, and loss of legal authority. Regulatory failure and risks of regulatory instability could undercut confidence in carbon markets and thereby deter essential investments in governmental implementation of climate laws, in technological innovation, energy efficiency, green economy businesses and other means to combat climate change.