Using Private Contracts for Climate Change Mitigation

Abstract

Regulation of climate change is caught up in a stalemate. Differences between developed and developing countries prevent reaching an international agreement. Transnational private regulation has unclear legitimacy, effectiveness and enforcement. National efforts are valuable, but their limited geographical reach creates incentives for companies to outsource environmentally heavy activities to countries with weaker regimes, the socalled “carbon leakage” effect. As a result the carbon emissions among international supply chains amount to multiple yearly emissions of some developed countries. This gap needs to be closed if we aim for effective global solutions to climate change. The majority of scholars agree that no single regulatory tool alone can remedy the situation, but that a combination of public and private, mandatory and voluntary regimes is necessary. The author proposes that supply chain contracts are the missing piece in the international climate change regulatory matrix. The article discusses why, despite their potential, supply chain contracts have hitherto experienced only little attention and why they can be successful where other regulation fails. It concludes that the potential of private contracting should be triggered by adequate regulation.