Carbon Market Crossroads: New Ideas for Harnessing Global Markets to Confront Climate Change

Cooling towers for Chinese coal Plant. (Source: AP)

By Nigel Purvis, Samuel Grausz, and Andrew Light

Scientists now believe that absent a major change of course, the planet will warm 4 degrees Celsius by 2100. Climate change on that scale would trigger severe economic, environmental, and social disruptions. The global community would become more fractured and unequal than today, and human suffering on an unprecedented scale could ensue, according to the World Bank.

Nations are negotiating in the United Nations a new global climate agreement, but that treaty may not enter into force until 2020. While such an agreement is essential, the international community must ramp up climate action now—not at the end of the decade. Stimulating much stronger climate action would require creating real political will—a sense of purpose that simply does not exist today. Although not a panacea, this report examines the contributions global carbon markets—defined here as the buying and selling of climate-change securities earned by reducing greenhouse-gas emissions in developing nations—could make to increasing the world’s ambition in addressing climate change.

To date, global carbon markets have played a key role in accelerating climate action while mobilizing billions of dollars in private-sector investment, encouraging economic growth, and helping to alleviate poverty. These markets have spread the revolutionary idea that all countries and communities benefit from fighting climate change and that domestic policies such as “pricing” carbon make economic sense. In the process, however, these markets have failed in serious ways including giving credits for questionable emission reductions and creating slow and opaque approval processes that have been tarnished with apparent conflicts of interest. The world’s largest carbon markets, moreover, face severely collapsed prices and a crisis in confidence. But these failures and crises should not obscure the markets’ more important legacy and opportunities for impact.

With the right political commitment and much-needed reforms, global carbon markets have the potential to deliver outsized environmental and economic benefits in the coming years. To harness these benefits, the international community should take the following concrete actions:

Over the next few pages, we describe the legacy of international carbon markets. We then discuss where those markets are likely to go in the coming years and how the above-mentioned recommendations can further make use of international carbon markets to fight climate change.

Endnotes and citations are available in thePDF version of thisreport.

9 Responses to Carbon Market Crossroads: New Ideas for Harnessing Global Markets to Confront Climate Change

  1. fj says:

    This global attention on climate finance comes at a critical moment: Research shows that the world will need to invest at least $5.7 trillion in clean water, sustainable transport, renewable energy, and other green infrastructure annually by 2020 in order to keep global temperature rise below 2 degrees Celsius, thus preventing climate change’s worst impacts. We’re currently directing only about $360 billion annually toward these activities.

  2. Superman1 says:

    4 C by 2100? Try 5-6 C, and this is the best case, where there is no major contribution from the positive feedbacks. At those temperatures, according to Lynas and others since then, we disappear from this planet.

  3. Leif says:

    Why oh why must I come to Climate Progress to find out this kind of information. It should be the first words out of the Presidents mouth every day and on the front page of every newspaper. Very sad.

  4. Mark E says:

    Solutions based on never-ending growth in the world market are doomed to failure, because NOTHING grows forever. Only some sort of democratic steady-state economics can prevent collapse of ecosystem services on which the economy depends.

    How long before world leaders start talking about this, seeing as how it’s the core problem?

  5. Merrelyn Emery says:

    How about we stop the market madness? Let’s just put a reasonable price on carbon that covers everything and rises continuously until everybody gets the message that the remaining stuff stays in the ground, ME

  6. Mulga Mumblebrain says:

    Oh dear. More Market Mambo-Jambo. The Holy Market in emissions has been a total catastrophe in Europe, so let’s have more of it! Let’s all wait for the Holy Invisible Hand to make its miraculous appearance, according to revealed wisdom, and we will all be redeemed. Of course, some will be redeemed more, much more, than others, but that’s business! After forty years of unmitigated disasters, in one field after another, from following the Market Mantra of commodifying EVERYTHING and flogging it off to the highest bidders (ie the rich)with water and National Parks clearly in the sights for more looting of the common wealth, all we get are demands for more and more of this lunacy that is driving us to self-destruction, all to sate the unquenchable greed of the capitalist elite. Leaving the ecological crises to The Market absolutely guarantees our destruction as ‘market logic’ (translated from the gibberish and simplified- ‘What’s innit for me?’)does what is always does-turns that which is living into the dead stuff of money.

  7. Mike Roddy says:

    A carbon tax is much better, with far less overhead for rapacious bankers and brokers. Other carbon trading issues include sloppy analysis for net emissions and difficulty in finding equivalencies across borders.

    Carbon taxes, by contrast, are fair and transparent, and send an immediate message to consumers and infrastructure investors.

  8. Paul Klinkman says:

    The carbon market is much like the tobacco market. They’re both noxious industries.

    In the 1920s it was easy for big tobacco to buy a doctor to say how healthy cigs were. Everybody knew about lung cancer but they couldn’t get the cowardly AMA to take a stand. In the 21st century John Boehner still walks around the House of Representatives handing out tobacco money in public.

    No clean mutual fund should invest in either noxious industry.

    Little kids stopped smoking cigs when the states taxed the tar right out of them. Smoking has gone way down. We can tax tar sands the same way.

    We can also go after the oil depletion allowance, an IRS goodie that solar companies sure don’t get.

    Then we can force oil companies to pay for 100% of their own jingoistic oil wars.

    We can help people to quit! Make saving energy really easy. Take the monkeypuzzle away, please!

    Drive down solar costs with altruistic solar co-ops. Are maximizing solar profits sacred at a time like this?

    At appliance stores, refrigerators carry energy guide labels. All houses for sale should be forced to carry energy guide labels because energy use is 70% of the cost of a home. The bad ones just won’t sell, except to people willing to tighten them up.

    We can support businesses in solar buildings. On the other side, we can move our businesses into LEED buildings. Eventually landlords, who speak the language of money, will get the message. You want rent money or an empty building? Then clean up your building’s energy use.

  9. Mulga Mumblebrain says:

    And taxes are known and constant, with increases flagged well ahead. That allows businesses and individuals to make rational plans. Markets, in contrast, are volatile, and the participants, a tiny, infinitely greedy, cadre of insiders, highly prefer volatility because prices movements are where they make their speculative bets, and upon which the gigantic edifice of rigged bets upon bets, the so-called ‘derivatives’ are founded. Prices movements can be ‘arbitraged’ to extract great amounts of ‘fees’ and other rentier extractions, too. In one of these rigged ‘markets’, it is profit that is the only good, and actual emissions reductions are almost totally irrelevant. That the market foot-pads have foisted this insanity on politicians is testament to the intellectual insufficiency of the political caste.

Nigel Purvis is the founder, president, and chief executive officer of Climate Advisers. Samuel Grausz is a director of policy and research at Climate Advisers. Andrew Light is a Senior Fellow at the Center for American Progress. This piece is reposted with permission from CAP.