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Carbon Market Crossroads

New Ideas for Harnessing Global Markets to Confront Climate Change

SOURCE: AP/Greg Baker

A man cycles past cooling towers of the coal powered Fuxin Electricity Plant in Fuxin, China.

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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.

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.

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