Climate change policy: The perils of unintended consequences

THE unintended consequences of government policy constitute a major theme for economists studying the welfare impact of policy and regulations. Adam Smith's famous "invisible hand" is an example of the unintended favourable effects of laissez faire. Most often, however, "the law of unintended consequences" has served to illustrate the adverse unanticipated effects of legislation and administrative regulations.

This applies as well to one of the most confounding policy challenges of the age: mitigatin…