This article analyzes the international emissions trading regime at the heart of the world's effort to address global warming as a means of exploring broader international governance issues.  The trading regime seeks to marry two models of global governance, market liberalism, which embraces markets as the model of global governance, and sustainable development, which seeks to change development patterns to protect future generations. 

This article explores a previously unacknowledged tension between market liberalism's goal of maximizing short term cost effectiveness and sustainable development's goal of catalyzing technological change for the benefit of future generations.  This article presents new data and theory unsettling the traditional view that market mechanisms encourage innovations vital to sustainable development.  Market actors fail to take positive spillovers, e.g. benefits accruing to competitors and thence to future generations, into account in making technological choices.  Because of this failure to take long-term economic development into account, the international trading markets have contributed far less to sustainable energy development than more targeted programs.