Barriers to the introduction of market-based instruments in climate policies: an integrated theoretical framework

Although economists have usually defended the superiority of market-based instruments, and an increasing use of those measures in OECD countries has taken place, there has been (and still is) some reluctance by policy makers to use them for climate policy. The aim of this paper is to provide a theoretical framework which allows the explanation of this paradox. This framework combines standard environmental economics reasoning with two economic approaches: the institutional path dependence and the public choice perspectives, complemented with some insights from political science studies. Ex-post empirical research using the Spanish case illustrates the accuracy and policy-relevance of our approach. Analysing the barriers to market-based measures in climate policy may allow us to draw lessons to facilitate the implementation of these instruments in the future.