Instrument Choice: Voluntary Programs and Regulation

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Voluntary programs are arrangements in which firms voluntarily commit themselves to reducing their GHG emissions. In some cases, firms are motivated by the threat of regulation, and assume that - if emissions are reduced in advance - future regulation will be less stringent. In other cases, governments encourage voluntary agreements to test new policy approaches or technologies; because they lack the authority to enforce regulations; or because the cost to the regulator is typically low. Voluntary programs are also sometimes used as an alternative to regulation when regulation is politically contentious.

Voluntary programs are seen by some as an instrument particularly suited to developing countries, because they do not require advanced institutions for enforcement, and because they typically call for more modest emissions reductions than other instruments. This latter feature promotes distributional equity because emissions reduction is then relatively less burdensome to developing countries.

The literature in this section compares the efficiency and the effectiveness of voluntary programs and regulation, both theoretically and anecdotally, and also considers the influence of expectations of regulation on the decision-making behavior of firms. Because the advent of unilateral voluntary programs as a policy alternative is recent, dating to the early 2000s, the body of literature in this section is small but growing.