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Climate change is one of the most contentious present day issues. There is no certainty as for the causes and consequences of climate change. The goal of this paper is to discuss and justify the implementation of incentive-based regulations against traditional command-and-control climate change laws. The paper includes a brief discussion of various viewpoints on climate change. The benefits and drawbacks of command-and-control and incentive-based regulations are discussed.

Climate Change Regulations

Climate change and global warming stir the hearts and minds of millions of people around the planet. Climate change has become a buzzword in the popular media and press. Despite the growing body of evidence that the global climate is changing, reasons why global temperatures are rising are not understood. Nevertheless, recent changes in temperature, sea levels and seasonality necessitate the implementation of broad climate change regulations. Command-and-control regulations exemplify an important instrument of regulating business and individual behaviors and are commonly used by governments to impose new environmental standards on businesses. Unfortunately, command-and-control regulations push businesses to invest substantial resources in the development of environment-friendly technologies and operations, with little motivation to pursue continued growth. As markets are becoming more competitive, only incentive-based regulations can motivate businesses to improve their technologies and decisions for the sake of environment.

Climate Change: Conflicting Views

Climate change generates conflicting viewpoints. While supporters of climate change argue that fossil fuels and greenhouse gas are at the heart of the major climate controversies, skeptics assume that climate change is nothing but an instrument of effective public manipulations. Environmental advocates and many journalists claim that businesses are primarily responsible for climate change (Johnson, 2010). They associate climate change with the greenhouse gas emissions generated by large and small industrial enterprises (Johnson, 2010). In these arguments, individuals, CO2 emissions from cars and other factors of environmental change play only minor role. Any shift to individuals is considered as businesses’ attempt to deny the harmfulness of industrial manufacturing for ecology (Johnson, 2010). Scientists publishing their findings in peer-reviewed journal almost unanimously agree with the statement that climate change is relevant, dangerous, and real (Oreskes, 2005).

Meanwhile, skeptics argue that climate change is merely a myth that lacks solid scientific evidence and support. Skeptics blame environmental advocates for being fear-mongering alarmists (Johnson, 2010). Climate change advocates are claimed to use the specter of catastrophic climate change to pursue an agenda of their own, one that places nature over the needs of people, forces the switch from fossil fuels to alternative energy sources, and tends toward “big-government intervention.”(Johnson, 2010)

It is interesting to note, that climate change skeptics display greater diversity of views and viewpoints than their opponents. Nevertheless, the main points of disagreement between skeptics and climate change advocates include: (1) whether humans are responsible for climate change; (2) how climate change impacts the planet; and (3) whether climate change can be reversed or at least stopped (Johnson, 2010).

My viewpoint on climate change is neither that of skeptics nor that of climate change advocates. I believe that climate change is real, but I also think that the current state of scientific evidence cannot suffice to claim that global warming is human-made and can be reversed. Press representations of climate change are filled with uncertainty, which result in public misunderstandings of the climate change phenomenon (Zehr, 2000). Part of the problem is in that popular press misinterprets scientific findings published in peer-reviewed journals (Zehr, 2000). That the 21st century’s temperatures far exceed the limits of temperature variability in previous centuries cannot be denied (Crowley, 2000). However, it is too early to say that climate change will continue to persist. Present forecasts of climate change are extremely uncertain, and even the most sophisticated climate models cannot create a coherent picture of the planet’s environmental future (Allen et al., 2000).

Command-and-Control and Incentive-Based Regulations

Despite the controversy surrounding the issue of climate change, businesses and individuals can contribute to the development of environment-friendly initiatives. Command-and-control and incentive-based (market-based) regulations are commonly used to promote environment-friendly policies and operations in organizations. The former are being extensively used by virtually all countries of the world and directly regulate individual and firms’ activities (Stavins, 1997). Command-and-control regulations are implemented to alter or ban the use of materials and equipment that are potentially harmful for the environment (Stavins, 1997). For example, some governments require that businesses comply with the standards of energy efficiency or limit their greenhouse-gas emissions to meet the predetermined performance goals.

By contrast, market-based (or incentive-based) regulations represent a novice approach to managing and regulating climate change. Incentive-based regulations are implemented with the goal of ensuring that polluters have motivation to continuously improve the quality and environmental safety of their operations (Stavins, 1997). Market-based instruments of climate change regulations impose direct cost incentives on businesses and individuals (Stavins, 1997). For example, a true emissions tax is imposed on businesses, depending on the amount of pollutants discharged (Stavins, 1997). All these regulatory schemes have their strengths and weaknesses.

Command-and-control regulatory standards (technology- or performance-based) typically require that businesses either purchase specified equipment and run designated procedures or specify the permissible levels of emissions for businesses and individuals (Stavins, 1997). Performance-based standards are more flexible than technology-based requirements in the sense that they allow businesses to choose the most convenient way to achieve their performance goals. Command-and-control mechanisms make businesses follow regulatory requirements under the threat of penalties and even closure. Unfortunately, command-and-control regulations do not meet the requirements of the market age, due to low cost-effectiveness. Conventional instruments of climate change regulation do not motivate businesses to pursue continuous, dynamic improvements. Once businesses achieve the standards set by governments, they no longer strive to develop, adopt and diffuse environment-friendly technologies (Stavins, 1997). By setting strict performance- and technology-based standards, governments also hinder the development of innovations in business.

In light of these controversies, market-based (or incentive-based) climate change regulations are a preferable option. If I were in the Federal Congress or Administration, I would certainly advocate the development and implementation of incentive-based climate change regulations for several reasons. First, incentive-based regulations exemplify a voluntary agreement between businesses and government in the pursuit of environmental goals. Therefore, businesses have greater opportunities and voice in the development of regulatory mechanisms and instruments. Second, incentive-based climate change regulations offer “cost-effective alternatives, provide dynamic incentives for technological change, and address concerns about distributional equity” (Stavins, 1997, p.302). More specifically, incentive-based regulations enable businesses to reduce their emissions to the point where the costs of environmental protection equal its benefits. Objectively, incentive-based regulations hold a better promise of environmental improvements. However, it is still unclear whether they can reverse the process of climate change.

Climate change is a controversial issue. The current state of evidence neither supports nor denies the human-made character of climate change. Factors predisposing global warming remain unknown. Nevertheless, businesses and individuals can contribute to the development of environment-friendly policies and initiatives. Command-and-control regulations are commonly used to alter or ban the use of equipment, materials and operations that can potentially damage the environment. However, command-and-control regulations demand considerable financial and material investments and no longer respond to the changeable conditions of business performance. The age of market relations warrants the implementation of incentive-based climate change regulations. Incentive-based regulations provide dynamic incentives for technological change in organizations and motivate businesses to continuously improve their environmental performance. Through incentive-based regulations businesses can enter voluntary environmental agreements with governments and affect policy decisions. Unlike traditional command-and-control regulations, incentive-based instruments hold a promise of environmental improvements at a global scale. Incentive-based regulations should become the central approach to managing climate change in business and private spheres in the coming years. 

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