Four Problems with Global Carbon Markets: A Critical Review

Abstract

This article offers a critique of global carbon markets and trading, with a special focus on the Clean Development Mechanism of the Kyoto Protocol. It explores problems with the use of tradable permits to address climate change revolving around four areas: Homogeneity, justice, gaming, and information. Homogeneity problems arise from the non-linear nature of climate change and sensitivity of emissions, which complicate attempts to calculate carbon offsets. Justice problems involve issues of dependency and the concentration of wealth among the rich, meaning carbon trading often counteracts attempts to reduce poverty. Gaming problems include pressures to promote high-volume, least-cost projects and the consequences of emissions leakage. Information problems encompass transaction costs related to carbon trading and market participation and the comparatively weak institutional capacity of project evaluators.