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Frontiers of Engineering Management

ISSN 2095-7513

ISSN 2096-0255(Online)

CN 10-1205/N

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Front. Eng    2019, Vol. 6 Issue (1) : 5-18    https://doi.org/10.1007/s42524-019-0011-x
RESEARCH ARTICLE
A global carbon market?
Michael G. POLLITT()
Energy Policy Research Group, Judge Business School, University of Cambridge, UK
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Abstract

This paper explores the prospects for a global carbon market as the centerpiece of any serious attempt to reach the ambitious goal for greenhouse gas (GHG) reductions set by climate scientists. My aim is to clarify the extent to which we know what policy might best support global decarbonisation. We begin by discussing what we might mean by a global carbon market and its theoretical properties. We then go on to discuss the EU Emissions Trading System experience and the recent experience with the Australian carbon tax. Next, we assess recent carbon market initiatives in the US and in China. My argument is that while establishing the amount of emissions required and dividing it up acceptably between countries requires an enormous scientific and international negotiations effort, the economic instruments to deliver the agreed targets are readily at hand.
Keywords carbon market      carbon tax      EU ETS     
Corresponding Author(s): Michael G. POLLITT   
Online First Date: 25 February 2019    Issue Date: 12 March 2019
 Cite this article:   
Michael G. POLLITT. A global carbon market?[J]. Front. Eng, 2019, 6(1): 5-18.
 URL:  
https://academic.hep.com.cn/fem/EN/10.1007/s42524-019-0011-x
https://academic.hep.com.cn/fem/EN/Y2019/V6/I1/5
China 26.5%
United States 13.1%
European Union 9.0%
India 7.4%
Russian Federation 4.5%
Japan 2.8%
Brazil 2.3%
Indonesia 1.9%
Canada 1.8%
Iran 1.7%
Total 71%
Tab.1  Top ten emitters of GHGs globally

(exc. Land use change and forestry (LUCF)) 2016

Fig.1  Carbon Taxes or Carbon Markets? Weitzman argument: Costs of errors setting quantities
Fig.2  The benefit of quantity setting in the presence of cliff-edge effects in emissions
Fig.3  A better argument?
EU ETS 1964 mt p.a. (2015)
China pilot schemes 1115 mt p.a. (2013-14)
Korea 539 mt p.a. (2015)
California-Quebec 490 mt p.a. (2020)
Australia (initially a tax) 283 mt p.a. (2012-13)
RGGI – Eastern United States 56 mt p.a. (2017)
Switzerland 5 mt p.a. (2015)
Total c.9% of global emissions
Tab.2  Example Emissions Trading Scheme sizes
State Interim Goal Final Goal
(2022-29) 2030
Montana 1534 1305
Kentucky 1509 1286
Illinois 1456 1245
Ohio 1383 1190
Pennsylvania 1258 1095
Texas 1188 1042
New York 1025 918
California 907 828
Idaho 832 771
Tab.3  Final State Goals for selected States

(lbs CO2 per MWh- rate-based standard)

Rate-Based Plan
3% discount rate
Climate Benefits 20
Air pollution health
co-benefits		 14-34
Total compliance costs 8.4
Net Benefits
(with climate benefits at 3% discount rate)		 26-45
Tab.4  Summary of Estimated Monetized Benefits, Compliance Costs and Net Benefits for the Proposed Guidelines in 2030 (billions of 2011$)
Shenzhen Shanghai Beijing Hubei Guangdong Tianjin Chongqing
Start of operation 2013 2013 2013 2014 2013 2013 2014
Carbon intensity target
2011-2015		 -21% -21% -18% -17% -19.5% -19% -17%
Threshold >20000
t CO2		 >20000
t CO2		 >20000 t CO2 >60000
t CO2		 >20000
t CO2		 >20000 t CO2 >20000
t CO2
Initial Year Allowances 33mt 160mt 50mt 324mt 388mt 160mt 125mt
Entities covered 635 191 490 138 242 114 184
Emissions covered 38% 50% 50% 35% 42% 60% 35-40%
Offsets 10% 5% 5% 10% 10% 10% 8%
Free initial allocation c.95% 100% c.95% c.90% c.97% 100% 100%
Penalties 3X market price 10-100k CNY 3-5X market price 3X market price 3X market price NA 2X market price
Tab.5  Key characteristics of the Chinese Emissions Trading Pilots
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