THE LONG VIEW

Bottom Line Up Front: Fragmented climate regulation across jurisdictions creates inefficiencies and distributional inequities in global network industries like aviation, undermining decarbonization efforts and threatening long-term climate stability despite potential short-term regional gains. Threat Identification: The lack of coordinated climate policy in interconnected markets leads to strategic misalignment between regulators and firms. While firms operate through integrated networks, regulators impose emissions charges independently, creating arbitrage opportunities and inefficiencies. This mismatch is particularly acute in network industries such as aviation, where operations span multiple jurisdictions with divergent policies. Probability Assessment: High likelihood within the current decade (2025–2035). As climate pressures intensify, regulatory divergence is expected to persist or grow, especially between regions with asymmetric market structures and political economies. Without intervention, fragmented governance will remain the status quo in aviation and other network sectors (e.g., shipping, energy). Impact Analysis: The study finds that uniform global regulation maximizes welfare in symmetric markets, but decentralized regimes may outperform in asymmetric ones due to better adaptation to local externalities. However, the highest aggregate welfare is achieved under a globally coordinated regulator applying region-specific charges. Despite these gains, significant distributional disparities across jurisdictions—such as cost burdens and competitive advantages—threaten political feasibility and equitable outcomes, risking coalition breakdowns and regulatory race-to-the-bottom dynamics (Adler, Andreana, & de Jong, 2026). Recommended Actions: 1) Establish a multilateral coordination body for climate policy in network industries with authority to set regionally differentiated emissions charges; 2) Implement cross-jurisdictional transfer mechanisms to mitigate distributional inequities and ensure political stability; 3) Harmonize monitoring, reporting, and verification (MRV) standards to reduce compliance complexity and prevent carbon leakage; 4) Pilot integrated regulatory frameworks in transatlantic aviation corridors as a proof of concept. Confidence Matrix: - Threat Identification: High confidence (supported by game-theoretic model and empirical calibration) - Probability Assessment: Medium-High confidence (based on current policy trajectories and modeled asymmetries) - Impact Analysis: High confidence in aggregate welfare findings; Medium confidence in distributional dynamics due to political variables - Recommended Actions: Medium confidence (feasibility depends on geopolitical cooperation, but technically sound)