Of all the schemes under discussion to stop or limit catastrophic climate change, one of those getting most attention is pollution trading. This popular but little-tried idea lies at the heart of some of the most prominent international approaches to the problem, including the Kyoto protocol and the European Union's Emissions Trading Scheme (EUETS). The trouble is, it won't work.

Pollution trading was developed in the US in the 1980s and 1990s to make reducing emissions cheaper and more palatable for heavy polluters. The idea is that if business A can reduce emissions more cheaply than business B, then B can pay A to make reductions for both of them. Moreover, by putting a price on emitting greenhouse gases, trading is meant to encourage businesses to invent new technologies to replace fossil fuel use.

This approach is misguided. Arguably, the US sulphur dioxide trading programme of the 1990s helped businesses ...