Carbon Markets: Past, Present, and Future

Abstract

Carbon markets are substantial and expanding. There are many lessons from experience over the past 9 years: fewer free allowances, careful moderation of low and high prices, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This architecture sits in sharp contrast to the 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, and policy makers must confront how to measure both the comparability of efforts among markets and the comparability between markets and a variety of other policy approaches.

Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design

“…While we similarly find that BAU emissions are likely to fall below the emissions cap in California, we explicitly model uncertain abatement demand and supply, concluding that these uncertainties are quite large compared to likely levels of price-responsive abatement, yielding a low 10 See Newell and Pizer (2003) for an application of Weitzman's analysis to a stock pollutant such as GHGs. See Newell, Pizer and Raimi (2014) and Schmalensee and Stavins (2017) for overviews of cap-and-trade programs in practice to date.…”

The political economy of ‘flex trees’: a preliminary analysis

“…In an epoch of global financial-capital dominance and over-accumulation, where speculative and imaginary market bubbles are continually being created, even barely, or merely assumedly, profitable 'abstract natures' can serve in narrative flexing, although, if 'carbon credits' are sold, the 'flexing' becomes 'real'. In spite of the above points, and although the global carbon trading system has collapsed, carbon markets have expanded, according to Newell, Pizer, and Raimi (2014). The discrepancy between 'carbon' storytelling and using wood for new products demonstrates that narrative flexing can exist as a 'product line' alongside the more tangible use of the commodity, thus multiplying the use of wood as (1) abstract 'captured "carbon"'; and (2) tangible new products or energy.…”

The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform

“…Thus, current and future supply and demand paths are at the heart of the price formation process in the market and essential for ensuring dynamic efficiency of the mitigation strategies chosen over time. 9 de Perthuis and Trotignon (2013) 10 Aldy and Stavins (2012), European Commission (2013) (p. 33) 11 Newell et al (2012) 12 Fankhauser et al (2010), Van den Bergh et al (2013, Weigt et al (2013) 13 Rubin (1996) 14 Hintermann (2010), Delarue et al (2008) Empirical evidence relating to these theoretical expectations is limited to Phase I (2005)(2006)(2007) and the early stage of Phase II (2008II ( -2012 of the EU ETS when the EUA price was still around 15€ / tCO 2…”

“…Indeed, in the absence of the necessary foresight, the price collar is a useful way for the European Commission to signal the 50 By contrast, if the floor price was implemented through the payment of a minimum tax (while maintaining the allowance release) a full price drop of EUAs between now and 2020 would probably result, since the oversupply would become permanent and thus their scarcity value zero. 51 Newell et al (2012) socially desired levels of current and future prices in line with the long-term cap of the EU ETS. This can further induce incentives to invest in low-carbon technologies and avoid a lock-in into a carbon intensive infrastructure, e.g.…”

“…Newell et al (2012);Murray et al (2009) 53 Grosjean et al (2014) 54 U.S. Congress (2007) , McKibbin (2009), de Perthuis and Trotignon (2013), Clò et al (2013) 55 Knopf et al (2013a), Edenhofer et al (2013)56 Burtraw and Shobe (2009) 57 Only in the extreme case of an allowance price close to zero the unilateral measures would be environmentally effective.…”