Video: How to Regulate Corporations for CO2

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The last time we spoke with Professor Dan Greenwood of Hofstra University’s School of Law, he explained the economic wisdom of a green recovery. In this latest interview, he explains how to regulate corporations for CO2.

He comes at the issue from perspective he’s gained over a career studying corporate law and behavior. He explains how corporations are likely to respond to carbon regulations — once they are in place — as something to be complied with to the minimum extent possible. For example, he warns that under a cap-and-trade regime,

The cheapest thing to do is likely to be to sell your quota and then continue to pollute, on the assumption that it will be quite difficult for anyone to catch you anyway, and even if they do, they probably won’t fine you enough to make it worth your while to stop.

His observations have bearing on the design and enforcement mechanisms of any variety of cap-and-trade system, or even a carbon tax, and he also explains how best to put a cap on carbon that no one can cheat on.

Here’s how you help make it work. Ideally, you want each firm to be policing its competitor; or policing its suppliers, so that the government doesn’t have to do it all. Government is not going to be able to do it all.

Please watch the video and listen to the good professor explain — quite persuasively — how and why.

With only one chance to get climate legislation right, given the lateness of the hour and the urgency of the need, his counsel is valuable, not only to those actually drafting legislation, but to those negotiating its shape, scope and bite.

If you understand corporate behavior the way Professor Greenwood does, you will design policy so that the polluters will not be able to outsmart the law, which they will try to do if given the chance.