China and other developing nations have shown an interest in establishing national carbon markets. Meanwhile, the uncertainty of the Kyoto Protocol also has been raising doubts about the future and strength of the international carbon market. Reports show that trading is down, and the United States seems further away from establishing a national carbon market than ever.
What do these developments mean for the future of international carbon markets?
I sat down with RFF Center for Climate and Electricity Policy Fellow Harrison Fell to get some answers.
Highlights are below, and to listen to the full podcast, stream it below.
“If firms don’t feel the system is going to be in place much further into the future, their desire to bank allowances for future use is going to decline. That’s going to increase the supply of allowances to be used for compliance currently which is going to depress the value of the allowances which is going to lead to a lower overall market cap for the entire market. Whether or not that uncertainty is really the driving force, I’m skeptical….”
“The major reason why these developing countries want to implement these policies is that they hope to be net suppliers of carbon credits. That is, they’re going to emit under their cap and with the additional credits, they’ll take those credits and sell them to developed countries who have their own carbon reduction plan… Right now with the depressed economic activity [in Europe] we’re seeing lower emission prices over there and the demand for these offset credits is not really there right now so I don’t think we’re going to see a lot of these plans being implemented in developing countries until you start to see a little bit more demand coming from developed countries for these excess permits.”
“In the analysis, when one looks at these different plans in terms of their effectiveness at reducing carbon emissions, they typically are considerably more costly than a cap-and-trade system or an emissions tax system. Perhaps one of the outcomes of the renewed talks about the CES (Clean Energy Standard)and RPS (Renewable Portfolio Standard) standards people will once again see that if we are really concerned about reducing emissions, the more efficient plan is to go with a carbon tax or some sort of a cap-and-trade type of system.”
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