Market-Based Responses to Climate Change: CO2 Market Design versus Operation

Abstract

This study highlights significant discrepancies between CO2 market design and the actual operation of CO2 markets. Our findings are based upon an empirical investigation undertaken in the context of the European Emissions Trading Scheme between January 2009 and May 2010. CO2 markets are examined from a practice-based perspective in which actors are engaged in exchange, representational and normalizing practices. Discrepancies between the actual and intended CO2 market practices are explained using the concepts of framing, overflowing and regulatory capture. We argue that the design of the European Emissions Trading Scheme has been influenced in such a way that it does not actually challenge market participants to reduce their CO2 emissions. In this way, the study challenges the near universal reliance upon CO2 markets as the primary policy mechanism for mitigating climate change.