Voluntary Agreements Theory: General Theory and Effectiveness

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Voluntary environmental agreements are an alternative to mandatory regulation that seek to improve the environment by encouraging, rather than requiring, businesses and other organizations to embrace clean technology and practices.  Recently, voluntary agreements have proliferated worldwide, primarily because of their political feasibility—they avoid the adversarial nature and consequent obstacles that characterize mandatory regulation.

The key issue regarding voluntary agreements is their effectiveness: whether voluntary agreements between government and firms, or voluntary targets created by firms themselves (self-regulation), are an effective means of curbing carbon emissions, especially as compared to traditional mandatory regulation.

Some commentators have praised voluntary agreements as a uniquely effective way of overcoming political obstacles to reducing carbon emissions, while others have derided voluntary agreements as useless or even counterproductive (because they create a false sense of progress).

The potential benefits of voluntary agreements include raising awareness (especially among firms) on climate change issues, and the dissemination of values and diffusion of pre-existing and new technical knowledge within and between firms.  Ideally, voluntary agreements can create incentives to invest and innovate among participating firms.

In contrast, the downsides of voluntary agreements include the potential for free riding by non-participants, inefficiency, monitoring and enforcement problems, and administration costs.  Whether voluntary agreements are successful in reducing carbon emissions depends on the balance of these factors.