The Brave New World of Carbon Trading
AbstractHuman induced climate change has become a prominent political issue, at both national and international levels, leading to the search for regulatory ‘solutions’. Emission trading has risen in popularity to become the most broadly favoured government strategy. Carbon permits have then quickly been developed as a serious financial instrument in markets turning over billions of dollars a year. In this paper, I show how the reality of permit market operation is far removed from the assumptions of economic theory and the promise of saving resources by efficiently allocating emission reductions. The pervasiveness of Greenhouse Gas emissions, strong uncertainty and complexity combine to prevent economists from substantiating their theoretical claims of cost effectiveness. Corporate power is shown to be a major force affecting emissions market operation and design. The potential for manipulation to achieve financial gain, while showing little regard for environmental or social consequences, is evident as markets have extended internationally and via trading offsets. At the individual level, there is the potential for emissions trading to have undesirable ethical and psychological impacts and to crowd out voluntary actions. I conclude that the focus on such markets is creating a distraction from the need for changing human behaviour, institutions and infrastructure.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 19114.
Date of creation: Dec 2009
Date of revision:
Emissions trading; Climate change;
Find related papers by JEL classification:
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-ENE-2009-12-19 (Energy Economics)
- NEP-ENV-2009-12-19 (Environmental Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- If not an Emissions Trading Scheme, then what?
by Peter Earl in Peter E. Earl - Eclectic Real-World Economics on 2010-04-29 04:15:53
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