An enforcement pyramid for greenhouse gas emissions trading systems

Abstract Enforcement is crucial for ensuring compliance by regulated entities in greenhouse gas (GHG) emissions trading systems (ETSs). This article identifies potential non‐compliance and enforcement issues behind officially reported high compliance rates, emphasising the need to complement existing ETS enforcement strategies to enhance their effectiveness. These issues encompass the Harrington paradox in ETSs, reported quantity‐based compliance rates (which fail to reflect the number of non‐compliant entities), potential ‘black figures’ for unreported GHG emissions and potentially weak implementation of enforcement regimes. Drawing on responsive regulation, this article proposes an ETS enforcement pyramid in which regulatory agencies can adjust enforcement tools based on entities' various, changing motivations and actions. It also highlights that the enforcement regimes of the EU ETS and China's national ETS share certain features of this enforcement pyramid. The reasons why these ETSs do not fully use the pyramid model may reveal limitations in the model. These limitations include relatively high administrative costs associated with the enforcement pyramid, information problems, difficulties in shifting between cooperation and deterrence, potential waste when entities are unresponsive and issues related to regulatory capture, proportionality, equality and consistency.