In our SuperFreakonomics chapter about global warming, a central argument was that greenhouse-gas emissions (and pollution in general) are an externality, and it is inherently difficult to control and/or price externalities. So, while it might seem sensible to encourage fewer emissions by taxation or price controls — or international agreements — the reality is complicated:
Besides the obvious obstacles — like determining the right size of the tax and getting someone to collect it — there’s the fact that greenhouse gases do not adhere to national boundaries. The earth’s atmosphere is in constant, complex motion, which means that your emissions become mine and mine yours. Thus, global warming.
If, say, Australia decided overnight to eliminate its carbon emissions, that fine nation wouldn’t enjoy the benefits of its costly and painful behavior unless everyone else joined in. Nor does one nation have the right to tell another what to do. The United States has in recent years sporadically attempted to lower its emissions. But when it leans on China or India to do the same, those countries can hardly be blamed for saying, Hey, you got to free-ride your way to industrial superpowerdom, so why shouldn’t we?