Introduction

The Kyoto Protocol, as ‘the first game in town’, represents significant progress towards reducing global emissions. Its cap-and-trade mechanism and flexible market-based implementation have been valued highly. Meanwhile, there has also been wide criticism (for instance, Nordhaus 2006; EC 2008) of its flaws: 1) small coverage and a lack of effectiveness; 2) countries, especially developing countries, lack incentive to participate; 3) the additionality problem of the Clean Development Mechanism (CDM). To fight effectively against global warming, a more effective post-Kyoto architecture is needed. Although a variety of alternative proposals aiming to succeed the Kyoto Protocol have their own advantages (Aldy et al. 2003; Aldy and Stavins 2007; Garnaut 2008; Nordhaus 2006, 2008; Stiglitz 2006; Weitzman 1974; Sagar and Kandlikar 1997), each also has its disadvantages. For instance, some require revolutionary changes to establish a framework completely different from the Kyoto Protocol; some are based on the particular interests of certain countries; and some are seen as not sufficiently fair by developing countries, especially by the major emerging emitters.

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