Carbon Markets, Institutions, Policies, and Research

The scale of investment needed to slow
greenhouse gas emissions is larger than governments can
manage through transfers. Therefore, climate change policies
rely heavily on markets and private capital. This is
especially true in the case of the Kyoto Protocol with its
provisions for trade and investment in joint projects. This
paper describes institutions and policies important for new
carbon markets and explains their origins. Research efforts
that explore conceptual aspects of current policy are
surveyed along with empirical studies that make predictions
about how carbon markets will work and perform. The authors
summarize early investment and price outcomes from newly
formed markets and point out areas where markets have
preformed as predicted and areas where markets remain
incomplete. Overall the scale of carbon-market investment
planned exceeds earlier expectations, but the geographic
dispersion of investment is uneven and important
opportunities for abatement remain untapped in some sectors,
indicating a need for additional research on how investment
markets work. How best to promote the development and
deployment of new technologies is another promising area for
study identified in the paper.