Carbon markets are substantial and they are expanding. There are many lessons from market experiences over the past eight years: there should be fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging market architecture features separate emissions trading systems serving distinct jurisdictions and a variety of other types of policies exist alongside the carbon markets. This situation is in sharp contrast to the top-down, integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another. Stakeholders and policymakers must confront how to measure the comparability of efforts among markets as well as relative to a variety of other policy approaches. International negotiators must in turn work out a global agreement that can accommodate and support increasingly bottom-up approaches to carbon markets and climate change mitigation.

Advances in technologies for extracting oil and gas from shale formations have dramatically increased U.S. production of natural gas. As production expands domestically and abroad, natural gas prices will be lower than without shale gas. Lower prices have two main effects: increasing overall energy consumption, and encouraging substitution away from sources such as coal, nuclear, renewables, and electricity. We examine the evidence and analyze modeling projections to understand how these two dynamics affect greenhouse gas emissions. Most evidence indicates that natural gas as a substitute for coal in electricity production, gasoline in transport, and electricity in buildings decreases greenhouse gases, although as an electricity substitute this depends on the electricity mix displaced. Modeling suggests that absent substantial policy changes, increased natural gas production slightly increases overall energy use, more substantially encourages fuel-switching, and that the combined effect slightly alters economy wide GHG emissions; whether the net effect is a slight decrease or increase depends on modeling assumptions including upstream methane emissions. Our main conclusions are that natural gas can help reduce GHG emissions, but in the absence of targeted climate policy measures, it will not substantially change the course of global GHG concentrations. Abundant natural gas can, however, help reduce the costs of achieving GHG reduction goals.

This paper assesses trends in the global energy sector through 2040 by harmonizing multiple projections issued by private, government, and inter-governmental organizations based on methods from "Global Energy Outlooks Comparison: Methods and Challenges" (Newell and Qian 2015). These projections agree that global energy consumption growth in the coming 25 years is likely to be substantial, with the global demand center shifting from Europe and North America to Asia, led by China and India. Most projections show energy demand growing as much or more in absolute terms to 2040 than previous multi-decade periods, although the rate of growth will be slower in percentage terms. Total consumption of fossil fuels grows under most projections, with natural gas gaining market share relative to coal and oil. The North American unconventional gas surge has expanded to tight oil more rapidly than anticipated, with implications for global oil markets that are still unfolding. Renewable electricity sources are also set to expand rapidly, while the prospects for nuclear power are more regionally varied. Global carbon dioxide emissions continue to rise under most projections and, unless additional climate policies are adopted, are more consistent with an expected rise in average global temperature of close to 3°C or more, than international goals of 2°C or less. Because of its massive scale and long-lived capital stock, the energy system tends to change slowly. However, recent years have seen faster-than-expected shifts on several key fronts, including oil supply and prices, demand for coal, and the deployment of renewable electricity technologies. We begin by briefly describing some of these recent developments, then note several major trends currently underway that appear likely to continue.Global energy markets have undergone substantial changes in recent years. First, unconventional oil and gas production has grown in North America more rapidly than most analyses had projected. This growth has dramatically affected North American natural gas supply and prices, and more recently has contributed to the 2014 collapse in global oil prices. Other factors, such as OPEC nations' decision to increase production, and weaker-than-anticipated demand from developing nations such as China, have also contributed to the decline in oil prices from more than $100 per barrel in mid-2014 to less than $50 through most of 2015. These low prices have forced companies to slow investment in high-cost prospects such as deepwater, oil sands, or in the arctic, and nations heavily dependent on oil export revenues such as Nigeria, Venezuela, and Russia are facing fiscal challenges, potentially increasing political instability.Second, costs for renewable electricity, led by wind and solar, have fallen more quickly than expected, making them cost-competitive with other fuel sources in some regions. While their deployment has grown rapidly, wind and solar still provide a very small share of the world's electricity. Most projections show these source...

Ongoing work on linking markets and mixing policies builds on successes and failures in pricing and trading carbon.