Published: Thu, Dec 17, 2009
Type: Publication

Carbon markets are increasingly a key feature in national climate policies. Their design and implementation reflect differing imperatives between developing and developed nations, raising questions about how they are developed and what it would take to link them together into a single global carbon market.

Establishing a Global Carbon Market: A discussion on linking various approaches to create a global market explores the possibilities for linking differing national approaches. The paper supplements Policy Directions to 2050, in which the WBCSD outlines a proposal for a new post-2012 climate agreement and identifies the establishment of a global carbon market as one of its key elements.

“Cap-and-trade” systems, carbon taxes, renewable energy obligations and technology standards are among the myriad emissions management approaches being proposed and used at the national level, each resulting in a different cost of carbon emissions. Linking different emissions management approaches together could create a single market and single cost for carbon emissions, and provide equal access to low-cost reduction opportunities in both developed and developing nations.

The paper identifies a secure and integrated international regulatory framework post-2012 with a deliberate multilateral approach to linking as key to establishing a global carbon market. The development of a global registry and market instruments allowing international trading and an expanded role for project-based mechanisms (such as the Clean Development Mechanism under the Kyoto Protocol) would be a core element of a global carbon market. Going forward, it could be broadened to include sector-wide programs.

This is all the more important, given that different countries have different carbon emissions levels. In some countries, especially newly emerging economies, emissions are on the rise, while in others they are reaching a plateau or reducing. Therefore, linking the different markets and mechanisms could offer an opportunity to capitalize on the positive synergies that exist between them and ultimately lead to the creation of a global carbon market modeled on financial markets.

Additional elements such as equitable pricing measures, penalties for non-compliance, facilities for banking and borrowing, requirements for monitoring and reporting, and offset policies would also need to be addressed. A global carbon market also needs an oversight body and to be subject to stringent checks and balances, again like those that regulate global financial markets.