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Carbon pricing should be a central element of climate mitigation strategies, helping countries transition to 'net zero' greenhouse gas emissions over the next three decades. Policymakers considering introducing or scaling up carbon pricing face technical choices between carbon taxes and emissions trading systems (ETSs) and in their design. This includes administration, price levels, relation to other mitigation instruments, use of revenues to address efficiency and distributional objectives, supporting measures to address competitiveness concerns, extension to broader emissions sources, and coordination at the global level. Political economy considerations also affect the choice and design of instruments. This paper discusses such issues in the choice between and design of carbon taxes and ETSs, providing guidance, broader considerations, and quantitative analyses. Overall, carbon taxes have significant practical advantages over ETSs (especially for developing countries) due to ease of administration, price certainty to promote investment, the potential to raise significant revenues, and coverage of broader emissions sources-but ETSs can have significant political economy advantages.
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Developing countries-both importers and exporters-could in fact benefit from carbon dioxide emissions trading to achieve tagets mandated by the Kyoto Protocol. The trading of rights to emit carbon dioxide has not officially been sanctioned by the United Nations Framework Convention on Climate Change, but it is of interest to investigate the consequences, both for industrial (Annex B) and developing countries, of allowing such trades. Ellerman, Jacoby, and Decaux examine the trading of caps assigned to Annex B countries under the Kyoto Protocol and compare the outcome with a world in which Annex B countries meet their Kyoto targets without trading. Under the trading scenario the former Soviet Union is the main seller of carbon dioxide permits and Japan, the European Union, and the United States are the main buyers. Permit trading is estimated to reduce the aggregate cost of meeting the Kyoto targets by about 50 percent, compared with no trading. Developing countries, though they do not trade, are nonetheless affected by trading. For example, the price of oil and the demand for other developing country exports are higher with trading than without. The authors also consider what might happen if developing countries were to voluntarily accept caps equal to Business as Usual Emissions and were allowed to sell emission reductions below these caps to Annex B countries. The gains from emissions trading could be big enough to give buyers and sellers incentive to support the system. Indeed, a global market for rights to emit carbon dioxide could reduce the cost of meeting the Kyoto targets by almost 90 percent, if the market were to operate competitively. The division of trading gains, however, may make a competitive outcome unlikely: Under perfect competition, the vast majority of trading gains go to buyers of permits rather than to sellers. Even markets in which the supply of permits is restricted can, however, substantially reduce the cost to Annex B countries of meeting their Kyoto targets, while yielding profits to developing countries that elect to sell permits. This paper-a product of Infrastructure and Environment, Development Research Group-is part of a larger effort in the group to examine the impact on developing countries of programs to correct global environmental problems. Denny Ellerman may be contacted at dellerman@mit.edu.
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An examination of how a transnational coalition of firms and NGOs influenced the emergence of emissions trading as a central component of global climate governance. Over the past decade, carbon trading has emerged as the industrialized world's primary policy response to global climate change despite considerable controversy. With carbon markets worth 144 billion in 2009, carbon trading represents the largest manifestation of the trend toward market-based environmental governance. In Carbon Coalitions, Jonas Meckling presents the first comprehensive study on the rise of carbon trading and the role business played in making this policy instrument a central pillar of global climate governance. Meckling explains how a transnational coalition of firms and a few market-oriented environmental groups actively promoted international emissions trading as a compromise policy solution in a situation of political stalemate. The coalition sidelined not only environmental groups that favored taxation and command-and-control regulation but also business interests that rejected any emissions controls. Considering the sources of business influence, Meckling emphasizes the importance of political opportunities (policy crises and norms), coalition resources (funding and legitimacy,) and political strategy (mobilizing state allies and multilevel advocacy). Meckling presents three case studies that represent milestones in the rise of carbon trading: the internationalization of emissions trading in the Kyoto Protocol (1989-2000); the creation of the EU Emissions Trading System (1998-2008); and the reemergence of emissions trading on the U.S. policy agenda (2001-2009). These cases and the theoretical framework that Meckling develops for understanding the influence of transnational business coalitions offer critical insights into the role of business in the emergence of market-based global environmental governance.
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Climate change is one of the biggest challenges of the 21st century. Countries around the globe are developing emissions markets as a response to it. This work examines the cultures of these markets, arguing policy makers must include more flexibility in climate policy to allow emissions markets to be translated and transferred across regions.
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The Research Handbook on Emissions Trading examines the origins, implementation challenges and international dimensions of emissions trading. It pursues an interdisciplinary approach drawing upon law, economics and, at times, political science, to present relevant research strands in a clear and multifaceted way. Its comprehensive mix of theoretical analysis and experiences from existing trading systems offers insights that can be applied around the world.The expert contributors bring together views from different disciplinary and geographic perspectives. This multifaceted examination of economic and legal origins, implementation problems and the emerging international aspect of emissions trading identifies key bodies of research for both upcoming and seasoned academics in the field and highlights future research opportunities. Its broad and accessible approach touches on climate law, environmental law and environmental governance. This Research Handbook will appeal strongly to academics and postgraduate students, as well as providing valuable insights for regulators, government officials and practitioners who are involved in emissions trading.
Emissions trading. --- Emissions trading --- Law and legislation.
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"The scale of investment needed to slow greenhouse gas emissions is larger than governments can manage through transfers. Therefore, climate change policies rely heavily on markets and private capital. This is especially true in the case of the Kyoto Protocol with its provisions for trade and investment in joint projects. This paper describes institutions and policies important for new carbon markets and explains their origins. Research efforts that explore conceptual aspects of current policy are surveyed along with empirical studies that make predictions about how carbon markets will work and perform. The authors summarize early investment and price outcomes from newly formed markets and point out areas where markets have preformed as predicted and areas where markets remain incomplete. Overall the scale of carbon-market investment planned exceeds earlier expectations, but the geographic dispersion of investment is uneven and important opportunities for abatement remain untapped in some sectors, indicating a need for additional research on how investment markets work. How best to promote the development and deployment of new technologies is another promising area for study identified in the paper. "--World Bank web site.