Energy Transition

The Return of Carbon Markets

business and regulators work together to foster vibrant carbon markets

How can business and regulators work together to foster vibrant carbon markets? Image: Benedikt von Loebell

James Workman
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Energy Transition?
The Big Picture
Explore and monitor how Energy Transition is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Energy Transition

This article is part of: World Economic Forum Annual Meeting
Loading...

Diverse, dynamic and decentralized carbon markets allocate resources more efficiently than bureaucrats. But they only work if they can send a clear and consistent price signal. Right now, that signal is missing from the commercial activity causing carbon pollution, thus rewarding waste yet discouraging innovation.

Carbon and other greenhouse gas emissions concentrate in the atmosphere, with costly and lethal results. As the planet warms, climate change escalates: floods in the Americas, droughts in Europe, sea-level rise in Bangladesh and desertification in Africa.

Yet if robust economic transactions got us into this mess, perhaps they can also bail us out.

Carbon markets: the ways and means to generate a price signal on carbon

Governments could simply tax carbon, and redistribute collected revenues equally among citizens. Or, if a tax is too toxic, states and industries may construct carbon markets in which polluters agree to a cap below current use, and have flexibility to earn and trade credits to those who go over. Some nations, like Canada, foster both.

These markets have gained traction at many scales, taking shape within provinces, cities, industries or even a single company. Some are old; others are newborn. Each yields lessons. For example, it is better to auction carbon pollution permits than to give them away. Also, a thicker, more inclusive market is better than a thin, narrowly targeted one. Finally, stable prices are better than volatile ones.

A global carbon market exchange

Optimal efficiencies would one day come through one global carbon market exchange, yielding a single planetary carbon price signal, much as there is for oil, coffee and corn. That vision moved a step closer after the recent agreement in Paris at the Conference of Parties to the United Nations Framework Convention on Climate Change. By setting a global cap, the COP21 fuelled political momentum, as ratified by 125 of 197 parties, and raised an economic question about whether multiple markets may converge one day soon.

Right now, carbon prices are all over the place. In some places, a ton of carbon pollution is valued at $1; in others, it has reached $133. But are those price signals too high, crushing economic growth, or too low, failing to move the needle? When asked, CEOs largely split the difference, arguing for $40 by 2020 and $50 by 2030.

Softening opposition to carbon markets

Public opposition to carbon markets or even taxes on carbon pollution has softened. Families want their children to grow up to be productive members of a strong economy, but they also want to be able to inhabit liveable towns and cities. They want freedom and flexibility to reward green growth, investing in outcomes that are modern, clean, smart and resilient.

Innovative technology is there, whether for electric cars and appliances, low-carbon cement fabrication or zero-emissions urban buildings, which have been the source of 40% of emissions. But there needs to be a long-term incentive to scale these up, and speed adoption.

No time to lose

Carbon markets would do just that, but there’s no time to lose.

In Marrakesh, at the recent UNFCC COP22, a Canadian Inuit told the tale of fellow hunters drowning due to ice that melts sooner and faster, and that is thinner and stranger than traditional knowledge could anticipate. Then, a former resident of a small island state in the Pacific Ocean described how his people had to relocate as seas overwhelmed their shoreline. The two embraced upon realizing that melted ice from one vanishing homeland is linked to the submergence of the other.

As their tales of despair merged into a global story, the countervailing pressure was building: that isolated carbon markets might also soon converge to yield one powerful global price signal of hope.

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Low-emissivity glass is revolutionizing building efficiency. Here's how

Görkem Elverici

June 7, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum