Case | HBS Case Collection | February 2010 (Revised April 2011)

The Political Economy of Carbon Trading

by Forest L. Reinhardt, J. Gunnar Trumbull, Mikell Hyman, Patia McGrath and Nazli Zeynep Uludere

Abstract

Global climate change is an increasingly prominent political and business problem. Design of market-based systems to reduce carbon emissions has proven difficult. More broadly, national attempts to comply with the provisions of the Kyoto Protocol present both governments and firms with significant challenges. The design of international institutions that will be useful for managing change after the Kyoto period is a challenge both for Kyoto ratifiers and for countries like the United States that have not ratified the agreement. Creation of a post-Kyoto treaty on climate change requires agreement by China and the United States, the world's largest carbon emitters. The case summarizes the science and economics of climate change and encourages readers to contemplate the strategic and risk management problems that it presents to government officials and to business leaders in developed countries and in the developing world.

Keywords: Policy; International Relations; Risk Management; Agreements and Arrangements; Business and Government Relations; Natural Environment; Pollution and Pollutants; Weather and Climate Change; Environmental Sustainability; Public Administration Industry;

Citation:

Reinhardt, Forest L., J. Gunnar Trumbull, Mikell Hyman, Patia McGrath, and Nazli Zeynep Uludere. "The Political Economy of Carbon Trading." Harvard Business School Case 710-056, February 2010. (Revised April 2011.)