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Policing carbon markets

Author

Listed:
  • Calel, Raphael
  • Dechezlepretre, Antoine
  • Venmans, Frank

Abstract

Carbon markets have emerged in recent decades as one of the most important tools for curbing industrial greenhouse gas emissions, but they present a number of novel enforcement challenges as compared to more conventional pollution regulations—new regulators with narrow authority, lack of legal precedent, and more. To shed light on the practical issues involved in policing carbon markets, we present the first comprehensive analysis of the EU Emissions Trading System, a single program that was policed by 31 different national regulators. We find generally high rates of compliance coupled with low rates of enforcement, a pattern that is known in the literature as ‘Harrington’s paradox.’ Variation in the probability and severity of fines explain just one tenth of the variation in compliance rates. Meanwhile, other enforcement strategies that have been pointed to as resolutions to Harrington’s paradox in other applications, such as ‘naming and shaming,’ appear to have had little discernible effect.

Suggested Citation

  • Calel, Raphael & Dechezlepretre, Antoine & Venmans, Frank, 2023. "Policing carbon markets," LSE Research Online Documents on Economics 128531, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:128531
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    File URL: http://eprints.lse.ac.uk/128531/
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    More about this item

    Keywords

    pollution control; compliance; enforcement; cap-and-trade;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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