Command and control instruments are not only predominantly applied in national but also in international environmental policy. Even though economists have argued for emission charges and emission permits on efficiency grounds, these instruments are not yet part of any international environmental agreement (except for the Kyoto Protocol). In contrast, uniform emission reduction quotas are frequently applied in international environmental policy. The paper explains this phenomenon with an extended welfare economics approach which accounts for important institutional constraints under which agreements have been operating in the past. It is shown that in a second-best world in which distributional and stability issues are important and where agreements have to be based on consensus, the quota regime may turn out to be superior compared to market-based instruments. The paper describes the main arguments in a non-technical and intuitive way by summarizing results of several economic models.
