Carbon emission trading#Criticisms

The economic problem with climate change is that the emitters of greenhouse gases (GHGs) do not face the external costs of their actions, which include the present and future welfare of people, the natural environment,{{Cite web |author=IMF |date=March 2008 |title=Fiscal Implications of Climate Change |url=http://www.imf.org/external/np/pp/eng/2008/022208.pdf |url-status=live |archive-url=https://web.archive.org/web/20100806180316/http://www.imf.org/external/np/pp/eng/2008/022208.pdf |archive-date=August 6, 2010 |access-date=2010-04-26 |publisher=International Monetary Fund, Fiscal Affairs Department}}{{Cite book |author=Halsnæs, K. |url=http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch2s2-4.html |title=Framing issues. |publisher=Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A. |year=2007 |editor=B. Metz |series=Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change |page=6 |contribution=2.4 Cost and benefit concepts, including private and social cost perspectives and relationships to other decision-making frameworks |display-authors=etal |access-date=2010-04-26 |display-editors=etal |archive-url=https://web.archive.org/web/20100502210408/http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch2s2-4.html |archive-date=May 2, 2010 |url-status=dead}}{{Cite book |author=Toth, F.L. |url=http://www.grida.no/climate/ipcc_tar/wg3/384.htm |title=Decision-making Frameworks. |publisher=Print version: Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. This version: GRID-Arendal website |year=2005 |editor=B. Metz |series=Climate Change 2005: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change |contribution=10.1.2.2 The Problem Is Long Term. |display-authors=etal |access-date=2010-01-10 |display-editors=etal |archive-url=https://web.archive.org/web/20131207020236/http://www.grida.no/climate/ipcc_tar/wg3/384.htm |archive-date=2013-12-07 |url-status=dead}} and the social cost of carbon. This can be addressed with the dynamic price model of emissions trading.

An emissions trading scheme for greenhouse gas emissions (GHGs) works by establishing property rights for the atmosphere.{{cite book |author=Goldemberg, J. |url=https://archive.org/details/climatechange1990000unse_h1m9/page/29 |title=Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change |publisher=Cambridge University Press, Cambridge, U.K., and New York, N.Y., U.S.A. |year=1996 |isbn=978-0-521-56854-8 |editor=J.P. Bruce |page=[https://archive.org/details/climatechange1990000unse_h1m9/page/29 29] |contribution=Introduction: scope of the assessment. |display-authors=etal |display-editors=etal}} The atmosphere is a global public good, and GHG emissions are an international externality. In the cap-and-trade variant of emissions trading, a cap on access to a resource is defined and then allocated among users in the form of permits. Compliance is established by comparing actual emissions with permits surrendered.{{cite journal |last=Tietenberg |first=Tom |author-link=Thomas H. Tietenberg |year=2003 |title=The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change |journal=Oxford Review of Economic Policy |volume=19 |issue=3 |pages=400–419 |doi=10.1093/oxrep/19.3.400}} The setting of the cap affects the environmental integrity of carbon trading, and can result in both positive and negative environmental effects.{{cite journal |author=David M. Driesen |title=Capping Carbon |url=http://www.elawreview.org/elaw/401/capping_carbon.html |journal=Environmental Law |volume=40 |issue=1 |pages=1–55 |quote=Setting the cap properly matters more to environmental protection than the decision to allow, or not allow, trades}}

Emissions trading programmes such as the European Union Emissions Trading System (EU-ETS) complement the country-to-country trading stipulated in the Kyoto Protocol by allowing private trading of permits, coordinating with national emissions targets provided under the Kyoto Protocol. Under such programmes, a national or international authority allocates permits to individual companies based on established criteria, with a view to meeting targets at the lowest overall economic cost.{{cite web |title=Tax Treaty Issues Related to Emissions Permits/Credits |url=http://www.oecd.org/tax/treaties/report-emissions-permits.pdf |url-status=live |archive-url=https://web.archive.org/web/20160304055814/http://www.oecd.org/tax/treaties/report-emissions-permits.pdf |archive-date=March 4, 2016 |access-date=22 November 2014 |publisher=OECD}}

Over time, the limit on emissions will decrease, so companies will have to decrease their own emissions. Therefore, emissions trading programs incentivize firms to use more clean or efficient forms of energy to prevent being penalized, and to reduce emissions. {{Cite web |date=2020-01-22 |title=How cap and trade works {{!}} Environmental Defense Fund |url=https://www.edf.org/climate/how-cap-and-trade-works?utm_source=google&utm_campaign=edf_markets_upd_dmt&utm_medium=cpc&utm_id=1518121920&gad_source=1&gclid=CjwKCAjw5PK_BhBBEiwAL7GTPe7DVixLLolpL88Wd1FjRB9mxkIjfrgRnJJZbRHPOzVH0oorMQcxjBoCiEEQAvD_BwE&gclsrc=aw.ds |access-date=2025-04-15 |website=www.edf.org |language=en}}

{{See also|Emissions trading#History}}

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| source = Ross Garnaut, lead author of the Garnaut Climate Change Review in 2011{{cite web |url=http://garnautreview.org.au/update-2011/update-papers/up6-key-points.html |title=Key points: Update Paper 6: Carbon pricing and reducing Australia's emissions |date=17 March 2011 |work=Garnaut Climate Change Review |access-date=16 July 2013 |archive-date=21 April 2013 |archive-url=https://web.archive.org/web/20130421070241/http://www.garnautreview.org.au/update-2011/update-papers/up6-key-points.html |url-status=live }}

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Carbon emission trading began in Rio de Janeiro in 1992, when 160 countries agreed the UN Framework Convention on Climate Change (UNFCCC). The necessary detail was left to be settled by the UN Conference of Parties (COP).

In 1997, the Kyoto Protocol was the first major agreement to reduce greenhouse gases. 38 developed countries committed themselves to targets and timetables.Grimeaud, D, 'An overview of the policy and legal aspects of the international climate change regime' (2001) 9(2) Environmental Liability 39. The resulting inflexible limitations on GHG growth could entail substantial costs if countries have to solely rely on their own domestic measures.Stewart, R, "Economic incentives for environmental protection: opportunities and obstacles", in Revesz, R; Sands, P; Stewart, R (eds.), Environment Law, the Economy and Sustainable Development, 2000, Cambridge University Press.

Carbon emissions trading increased rapidly in 2021 with the start of the Chinese national carbon trading scheme.{{Cite news |date=July 16, 2021 |title=China's carbon market scheme too limited, say analysts |url=https://www.ft.com/content/3bcc2380-8544-4146-ba71-83944caff48d |url-status=live |archive-url=https://web.archive.org/web/20210716073027/https://www.ft.com/content/3bcc2380-8544-4146-ba71-83944caff48d |archive-date=July 16, 2021 |access-date=2021-07-16 |newspaper=Financial Times}} The increasing costs of permits on the EU ETS have had the effect of increasing costs of coal power.{{Cite web |date=2021-06-24 |title=Study: EU emission trading system makes coal more expensive |url=https://www.compressortech2.com/news/study-eu-emission-trading-system-makes-coal-more-expensive/8013130.article |url-status=live |archive-url=https://web.archive.org/web/20210716184016/https://www.compressortech2.com/news/study-eu-emission-trading-system-makes-coal-more-expensive/8013130.article |archive-date=July 16, 2021 |access-date=2021-07-16 |website=CompressorTECH² |language=en}}

A 2019 study by the American Council for an Energy Efficient Economy finds that efforts to put a price on greenhouse gas emissions are growing in North America.{{Cite web |last= |date=2019-01-02 |title=State and Provincial Efforts to Put a Price on Greenhouse Gas Emissions, with Implications for Energy Efficiency |url=https://aceee.org/white-paper/carbon-tax-010319 |url-status=live |archive-url=https://web.archive.org/web/20190109012007/https://aceee.org/white-paper/carbon-tax-010319 |archive-date=January 9, 2019 |access-date=2019-01-08 |website=ACEEE}} In 2021, shipowners said they were against being included in the EU ETS.{{Cite web |last=Meredith |first=Sam |date=2021-07-12 |title=The world's largest carbon market is set for a historic revamp. Europe's shipowners are concerned |url=https://www.cnbc.com/2021/07/12/why-shipowners-are-concerned-about-a-revamp-to-europes-carbon-market.html |url-status=live |archive-url=https://web.archive.org/web/20210716184309/https://www.cnbc.com/2021/07/12/why-shipowners-are-concerned-about-a-revamp-to-europes-carbon-market.html |archive-date=July 16, 2021 |access-date=2021-07-16 |website=CNBC |language=en}}

The global carbon market has experienced significant growth in recent years. In 2023, the value of the global carbon market reached a record high of 881 billion euros (approximately $949 billion), representing a 2% increase from the previous year.{{Cite web |title=Global carbon market size 2023 |url=https://www.statista.com/statistics/1334848/global-carbon-market-size-value/ |access-date=2025-05-06 |website=Statista |language=en}} The European Union Emissions Trading System (EU ETS) remains the largest carbon market based on value, accounting for approximately 87% of the global market size in 2023.

In terms of trading volume, approximately 12.5 billion metric tons of carbon dioxide (GtCO₂) were traded in global carbon markets in 2022, which represented a decline of over 20% from the previous year but still an 18.2% increase compared to 2019 levels. Europe dominated the carbon trading volume, accounting for roughly 74% of the traded volume of CO₂ worldwide in 2022.{{Cite web |title=Global carbon market emissions trading volume 2022 |url=https://www.statista.com/statistics/1335916/carbon-market-emission-trading-volume-worldwide/ |access-date=2025-05-06 |website=Statista |language=en}}

Market forecasts suggest substantial future growth potential, with the carbon trading market expected to expand from approximately $469.8 billion in 2023 to $9,446.1 billion by 2033, representing a compound annual growth rate (CAGR) of 35.0%.{{Cite web |title=Carbon Trading Market |url=https://market.us/report/carbon-trading-market/ |access-date=2025-05-06 |website=Market.us |language=en-US}}

{{See also|Emissions trading#Economics|Carbon price|Economic analysis of climate change}}{{Green economics sidebar}}Economists generally agree that to regulate emissions efficiently, all polluters need to face the full marginal social costs of their actions.Goldemburg et al., 1996, pp. 29, 37 Regulation of emissions applied only to one economic sector or region drastically reduces the efficiency of efforts to reduce global emissions.Goldemburg et al., 1996, p. 30 There is, however, no scientific consensus over how to share the costs and benefits of reducing future climate change, or the costs and benefits of adapting to any future climate change.

{{excerpt|Carbon offsets and credits}}

A domestic carbon emissions trading scheme is constrained in its regulatory jurisdiction. GHG emissions may thus leak to another region or sector with less regulation. Generally, leakages reduce the effectiveness of domestic emission abatement efforts. Notwithstanding, leakages may also be negative in nature, increasing the effectiveness of domestic abatement efforts.{{cite book |author=IPCC |url=http://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-a-d.html |title=Annex I: Glossary |publisher=Print version: Cambridge University Press, Cambridge, U.K., and New York, N.Y., U.S.A.. This version: IPCC website |year=2007 |editor=B. Metz |series=Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change |contribution=Glossary A-D |access-date=25 August 2010 |display-editors=etal |archive-url=https://web.archive.org/web/20100503041544/http://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-a-d.html |archive-date=3 May 2010 |url-status=dead}} For example, a carbon tax applied only to developed countries might lead to a positive leakage to developing countries.Goldemberg et al., 1996, pp. 27–28 However, a negative leakage might also occur due to technological developments driven by domestic regulation of GHGs,{{cite book |author=Barker, T. |url=http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch11s11-es.html |title=Mitigation from a cross-sectoral perspective |publisher=Print version: Cambridge University Press, Cambridge, U.K., and New York, N.Y., U.S.A.. This version: IPCC website |year=2007 |editor=B. Metz |series=Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change |contribution=Executive Summary |display-authors=etal |access-date=6 May 2010 |display-editors=etal |archive-url=https://web.archive.org/web/20100331200123/http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch11s11-es.html |archive-date=31 March 2010 |url-status=dead}} helping to reduce emissions even in less regulated regions.

The current state of carbon emissions trading shows that roughly 22% of global greenhouse emissions are covered by 64 carbon taxes and emission trading systems as of 2021.World Bank. (2021, May 25). State and trends of carbon pricing 2021. https://openknowledge.worldbank.org/handle/10986/35620 Energy intensive industries that are covered by such instruments may view the regulatory disparity between jurisdictions as a loss of competitiveness. They may therefore make strategic production decisions that involve carbon leakage. To mitigate carbon leakage and its effects on the environment, policymakers need to harmonize international climate policies and provide incentives to prevent companies from relocating production to regions with more lenient environmental regulations.Carbon Market Watch. (2017). Carbon Leakage: A short history of an industry lobbying buzzword. Retrieved from https://carbonmarketwatch.org/2017/02/28/carbon-leakage-a-short-history-of-an-industry-lobbying-buzzword/

Free emission permits, given to sectors vulnerable to international competition, are one way of addressing carbon leakage{{cite book |author=Carbon Trust |url=https://publications.parliament.uk/pa/cm200910/cmselect/cmenvaud/290/9042105.htm |title=The role of carbon markets in preventing dangerous climate change |date=March 2009 |publisher=UK Parliament House of Commons Environmental Audit Select Committee. The fourth report of the 2009-10 session |series=Minutes of Evidence, Tuesday 21 April 2009. |contribution=Memorandum submitted by The Carbon Trust (ET19) |access-date=30 April 2010}} by acting as a subsidy for the sector in question. The Garnaut Climate Change Review considered the free allocation of permits unjustified in any circumstances, arguing that governments could deal with market failure or claims for compensation more transparently with the revenue from full auctioning of permits.{{cite book |last=Garnaut |first=Ross |url=http://www.garnautreview.org.au/chp14.htm#14_3 |title=The Garnaut Climate Change Review |publisher=Cambridge University Press |year=2008 |isbn=978-0-521-74444-7 |contribution=Releasing permits into the market |access-date=28 April 2010}}

{{Further|Eco-tariff}}

Another economically efficient solution to carbon leakage is border adjustment,{{cite book |author=Neuhoff, K. |url=https://publications.parliament.uk/pa/cm200910/cmselect/cmenvaud/290/290we22.htm |title=The role of carbon markets in preventing dangerous climate change |date=22 February 2009 |publisher=UK Parliament House of Commons Environmental Audit Select Committee. The fourth report of the 2009-10 session |series=Written evidence |contribution=Memorandum submitted by Karsten Neuhoff, Assistant Director, Electric Policy Research Group, University of Cambridge |access-date=1 May 2010}}{{cite book |author=Newbery, D. |url=https://publications.parliament.uk/pa/cm200910/cmselect/cmenvaud/290/290we33.htm |title=The role of carbon markets in preventing dangerous climate change |date=26 February 2009 |publisher=UK Parliament House of Commons Environmental Audit Select Committee. The fourth report of the 2009-10 session |series=Written evidence |contribution=Memorandum submitted by David Newbery, Research Director, Electric Policy Research Group, University of Cambridge |access-date=30 April 2010}} where tariffs are set on imported goods from less regulated countries. A problem with border adjustments is that they might be used as a disguise for trade protectionism.{{cite journal |author=Grubb, M. |display-authors=etal |date=3 August 2009 |title=Climate Policy and Industrial Competitiveness: Ten Insights from Europe on the EU Emissions Trading System |url=http://www.climatestrategies.org/our-reports/category/17/204.html |url-status=dead |journal=Climate Strategies |page=5 |archive-url=https://web.archive.org/web/20100206052137/http://www.climatestrategies.org/our-reports/category/17/204.html |archive-date=6 February 2010 |access-date=14 April 2010}} Some types of border adjustment may also not prevent emissions leakage.

The EU Carbon Border Adjustment Mechanism takes in effect for 6 sectors in 2026.{{cite web | title=cbam regulation | website=EUR-Lex | date=10 May 2023 | url=https://eur-lex.europa.eu/eli/reg/2023/956/oj}}

Carbon trading can be helpful to achieve climate justice. It can transfer money from rich countries, which tend to have higher emissions, to countries with lower incomes and lower emissions for improved climate action.{{cite web |last1=Soezer |first1=Alexandra |last2=Kansuk |first2=Stephen |title=Carbon Justice for All: How Carbon Markets Can Advance Equitable Climate Action Globally |url=https://www.undp.org/africa/blog/carbon-justice-all-how-carbon-markets-can-advance-equitable-climate-action-globally |website=United Nations Development Programme |access-date=16 March 2025}}

Cap-and-trade systems have also been linked to causing environmental justice as low-income communities receive less benefits from reduced emissions and are often located near the emitters. Companies under emission trading systems will often emit more pollutants not covered by the system and disproportionately affect low-income communities. Lambert, Lea. “Trading Rights for Greenhouse Gases: The Dilemma of Cap-And-Trade and Environmental Justice.” George Mason University Civil Rights Law Journal, vol. 24, no. 2, Mar. 2014, pp. 205–31. EBSCOhost, research.ebsco.com/linkprocessor/plink?id=9774996b-9033-3e6b-89ce-9799d4ead71b.

The Paris Agreement provided a legal base for the creation of a global carbon market, which has a potentially significant role in stopping climate change.{{cite web |title=International carbon market |url=https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/international-carbon-market_en |access-date=27 February 2024 |website=European Commission |publisher=European Union}} In the beginning of 2024, the idea made some progress, as in the Bonn meeting new tools and supervisory bodies was created.{{cite web |last1=Jardine |first1=Chloe |date=March 4, 2024 |title=Paris agreement carbon crediting mechanism advances |url=https://www.argusmedia.com/en/news-and-insights/latest-market-news/2544425-paris-agreement-carbon-crediting-mechanism-advances |access-date=5 March 2024 |website=Argus}}

The rules of the European Union Emissions Trading System include the possibility of connecting it with other trading systems. This has already happened with the Switzerland emissions trading system.{{cite web |last1=Vaughan |first1=Scott |last2=Di Leva |first2=Charles |title=Will International Carbon Markets Finally Deliver? |url=https://www.iisd.org/articles/deep-dive/will-international-carbon-markets-finally-deliver |access-date=27 February 2024 |website=International Institute for Sustainable Development.}} China expressed a support for a global carbon market, saying it is better than the EU Carbon Border Adjustment Mechanism.{{cite news |date=26 February 2024 |title=China Objects to EU's Border Carbon Tax, Backs Global Market |url=https://www.bnnbloomberg.ca/china-objects-to-eu-s-border-carbon-tax-backs-global-market-1.2039131 |access-date=27 February 2024 |agency=BNN Bloomberg}}

In 2023 the global value of carbon markets was $948.75 billion.{{cite news |last1=Twidale |first1=Susanna |date=12 February 2024 |title=Global carbon markets value hit record $949 bln last year - LSEG |url=https://www.reuters.com/markets/commodities/global-carbon-markets-value-hit-record-949-bln-last-year-lseg-2024-02-12/ |access-date=1 March 2024 |work=Reuters}} It is expected to reach 2.68 trillion dollars by 2028 {{cite news |date=19 April 2023 |title=Global Carbon Credit Market 2023: Sector to Reach $2.68 Trillion by 2028 at a CAGR of 18.23% |url=https://finance.yahoo.com/news/global-carbon-credit-market-2023-104800429.html |access-date=1 March 2024 |agency=Yahoo}} and 22 trillion by 2050.{{cite news |last1=McFarlane |first1=Sarah |date=1 September 2023 |title=Energy Traders See Big Money in Carbon-Emissions Markets |url=https://www.wsj.com/articles/energy-traders-see-big-money-in-carbon-emissions-markets-11630488780?st=zyyhujr8ao3mjtq&reflink=article_imessage_share |access-date=1 March 2024 |agency=Wall Street Journal}}

Merging the ETC of China and the EU can be something that sends "a powerful signal to the rest of the world and catalyzes international buy-in" while strongly increasing the efficiency of the system and allowing both countries to attain higher results with less spending.{{cite web |last1=Sun |first1=Angela |title=East Meets West: Linking the China and EU ETS’s |url=https://kleinmanenergy.upenn.edu/research/publications/east-meets-west-linking-the-china-and-eu-etss/ |website=Kleinman Center for Energy Policy |publisher=University of Pennsylvania |access-date=16 March 2025}}

Tradable emissions permits can be issued to firms within an ETS by two main ways: by free allocation of permits to existing emitters or by auction.{{citation |author=Gupta, S. |title=Chapter 13: Policies, instruments, and co-operative arrangements |year=2007 |editor=B. Metz |display-editors=etal |url=http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-2-1-3.html |access-date=10 July 2010 |series=Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change |contribution=Section 13.2.1.3 Tradable permits |publisher=Cambridge University Press, Cambridge, U.K., and New York, N.Y., U.S.A. |display-authors=etal}} In the first case, the government receives no carbon revenue. In the second it receives the full value of the permits, on average. In either case, permits will be equally scarce and just as valuable to market participants, such that the price at sale will be the same in either case.{{cn|date=July 2024}}

Generally, emitters will profit from permits allocated to them for free. But if they must pay, their profits will be reduced. If the carbon price equals the true social cost of carbon, then long-run profit reduction will reflect the consequences of paying this new cost. If having to pay this cost is unexpected, then there will likely be a one-time loss due to the change in regulations and not simply due to paying the real cost of carbon. However, if there is advanced notice of this change, or if the carbon price is introduced gradually, this one-time regulatory cost will be minimized. There has now been enough advance notice of carbon pricing that this effect should be negligible on average.{{cn|date=July 2024}}

Allocating permits based on past emissions is called "grandfathering".Goldemberg et al., 1996, p. 38 Grandfathering permits can lead to perverse incentives, such as a firm being given fewer permits in the future for aiming to cut emissions drastically.{{Cite web |date=March 2008 |title=Fiscal Implications of Climate Change |url=http://www.imf.org/external/np/pp/eng/2008/022208.pdf |url-status=live |archive-url=https://web.archive.org/web/20100806180316/http://www.imf.org/external/np/pp/eng/2008/022208.pdf |archive-date=August 6, 2010 |access-date=2010-04-26 |publisher=International Monetary Fund |pages=25–26}} Another method of grandfathering is to base allocations on current production of economic goods rather than historical emissions. Under this method of allocation, the government will set a benchmark level of emissions for each good deemed to be sufficiently trade exposed and allocate firms units based on their production of this good. However, allocating permits in proportion to output implicitly subsidises production.{{cite journal |last1=Fischer |first1=C |last2=Fox |first2=A |year=2007 |title=Output-based allocation of emissions permits for mitigating tax and trade interactions |url=http://www.rff.org/Documents/RFF-DP-04-37.pdf |url-status=live |journal=Land Economics |volume=83 |issue=4 |pages=575–599 |doi=10.3368/le.83.4.575 |s2cid=55649597 |archive-url=https://web.archive.org/web/20041217232538/http://www.rff.org/Documents/RFF-DP-04-37.pdf |archive-date=2004-12-17 |access-date=10 August 2010 |quote=However, there often are important trade-offs in terms of efficiency because OBA implicitly subsidizes production, unlike conventional lump-sum allocation mechanisms like grandfathering.}}

The Garnaut Climate Change Review noted that grandfathered permits are not free of cost. As the permits are scarce, they have value, and the benefit of that value is acquired in full by the emitter. The cost is imposed elsewhere in the economy, typically on consumers who cannot pass on the costs: The cost of a grandfathered permit may be regarded as the opportunity cost of not selling the permit at full value.{{cite web |author=Don Fullerton & Gilbert E. Metcalf |year=1997 |title=Environmental Taxes and the Double-Dividend Hypothesis |url=https://www.nber.org/system/files/working_papers/w6199/w6199.pdf |url-status=live |archive-url=https://web.archive.org/web/20210509062839/https://www.nber.org/system/files/working_papers/w6199/w6199.pdf |archive-date=May 9, 2021 |access-date=July 29, 2014 |publisher=NBER}} As a result, profit-maximising firms receiving free permits will raise prices to customers because of the new, non-zero cost of emissions.{{cite book |last1=Goulder |first1=Lawrence H. |url=http://www.rff.org/rff/documents/rff-dp-06-06.pdf |title=The Economics of Climate Change |last2=Pizer |first2=William A. |publisher=Resources for the Future |year=2006 |series=DP 06-06 |archive-url=https://web.archive.org/web/20061026051401/http://www.rff.org/rff/Documents/RFF-DP-06-06.pdf |archive-date=2006-10-26 |url-status=live}} This gives permit-liable polluters an incentive to reduce their emissions. However, if a firm sells the same amount of output as before that cap, with no change in production technology, the full value of permits received for free becomes windfall profits. However, since the cap reduces output and often causes the company to incur costs to increase efficiency, windfall profits will be less than the full value of its free permits.

Grandfathering may also slow down technological development towards less polluting technologies.{{cite book |author=Fisher, B.S. |url=https://archive.org/details/climatechange1990000unse_h1m9/page/417 |title=Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change |publisher=Cambridge University Press, Cambridge, U.K., and New York, N.Y., U.S.A. |year=1996 |isbn=978-0-521-56854-8 |editor1=J.P. Bruce |page=[https://archive.org/details/climatechange1990000unse_h1m9/page/417 417] |contribution=An Economic Assessment of Policy Instruments for Combating Climate Change. |display-authors=etal |display-editors=etal}} The Garnaut Report noted that any method for free permit allocation will have the disadvantages of high complexity, high transaction costs, value-based judgements, and the use of arbitrary emissions baselines. Garnaut also noted that the complexity of free allocation and the large amounts of money involved encourage non-productive rent-seeking behaviour and lobbying of governments — activities that dissipate economic value.

At the same time, allocating permits can be used as a measure to protect domestic firms who are internationally exposed to competition.{{cite journal |author=Hepburn, C. |year=2006 |title=Regulating by prices, quantities or both: an update and an overview |url=http://www.economics.ox.ac.uk/members/cameron.hepburn/Hepburn%20(2006,%20Oxrep)%20Regulation%20by%20P%20or%20Q.pdf |url-status=dead |journal=Oxford Review of Economic Policy |volume=22 |issue=2 |pages=236–239 |doi=10.1093/oxrep/grj014 |archive-url=https://web.archive.org/web/20090114050347/http://www.economics.ox.ac.uk/members/cameron.hepburn/Hepburn%20%282006%2C%20Oxrep%29%20Regulation%20by%20P%20or%20Q.pdf |archive-date=14 January 2009 |access-date=30 August 2009}} This happens when domestic firms compete against other firms that are not subject to the same regulation. This argument in favor of allocation of permits has been used in the EU ETS, where industries that have been judged to be internationally exposed have been given permits for free.{{Cite web |author=Cambridge Centre for Climate Change Mitigation Research |date=19 June 2008 |title=The Revision of the EU's Emissions Trading System |url=https://publications.parliament.uk/pa/ld200708/ldselect/ldeucom/197/8100802.htm |url-status=live |archive-url=https://web.archive.org/web/20210225174427/https://publications.parliament.uk/pa/ld200708/ldselect/ldeucom/197/8100802.htm |archive-date=February 25, 2021 |access-date=2010-04-28 |publisher=UK Parliament}}

The International Air Transport Association, whose 230 member airlines comprise 93% of all international traffic, argue that emissions levels should be based on industry averages rather than using individual companies' previous emissions levels to set their future permit allowances, stating that "would penalise airlines that took early action to modernise their fleets, while a benchmarking approach, if designed properly, would reward more efficient operations".{{cite web |title=What You Need to Know About Emissions Trading |url=http://www.iata.org/NR/rdonlyres/95D34D98-7906-4A23-8884-1FA561709037/53257/EmissionsTrading.pdf |archive-url=https://web.archive.org/web/20070303092647/http://www.iata.org/NR/rdonlyres/95D34D98-7906-4A23-8884-1FA561709037/53257/EmissionsTrading.pdf |archive-date=March 3, 2007 |access-date=2009-09-26 |publisher=International Air Transport Association}}

Hepburn et al. state that, empirically, businesses tend to oppose auctioning of emissions permits, while economists almost uniformly recommend auctioning permits.{{Cite journal |last1=Hepburn |first1=Cameron J |last2=Neuhoff |first2=Karsten |last3=Grubb |first3=Michael |last4=Matthes |first4=Felix |last5=Tse |first5=Max |year=2006 |title=Auctioning of EU ETS Phase II allowances: why and how? |url=http://www.dspace.cam.ac.uk/bitstream/1810/183630/1/eprg0621.pdf |journal=Climate Policy |volume=6 |issue=1 |pages=137–160 |doi=10.3763/cpol.2006.0608 |access-date=19 May 2010}} Auctioning permits provides the government with revenues, which can be used to fund low-carbon investment and cuts in distortionary taxes.{{cite news |date=2007-01-25 |title=Climate change; The greening of America |url=http://economist.com/opinion/displaystory.cfm?story_id=E1_RVJTRQV |url-status=dead |archive-url=https://web.archive.org/web/20090212113705/http://www.economist.com/opinion/displaystory.cfm?story_id=E1_RVJTRQV |archive-date=2009-02-12 |access-date=2009-04-03 |newspaper=The Economist}}{{cite book |author=Fisher, B.S. |url=https://archive.org/details/climatechange1990000unse_h1m9/page/417 |title=Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change |publisher=IPCC |year=1996 |isbn=978-0-521-56854-8 |editor=J.P. Bruce |page=[https://archive.org/details/climatechange1990000unse_h1m9/page/417 417] |chapter=An Economic Assessment of Policy Instruments for Combating Climate Change |display-authors=etal |display-editors=etal |chapter-url=http://www.ipcc.ch/ipccreports/sar/wg_III/ipcc_sar_wg_III_full_report.pdf}} Auctioning permits can therefore be more efficient and equitable than allocating permits.{{cite journal |author=Hepburn, C. |year=2006 |title=Regulating by prices, quantities or both: an update and an overview |url=http://www.economics.ox.ac.uk/members/cameron.hepburn/Hepburn%20(2006,%20Oxrep)%20Regulation%20by%20P%20or%20Q.pdf |journal=Oxford Review of Economic Policy |volume=22 |issue=2 |pages=226–247 |doi=10.1093/oxrep/grj014 |access-date=30 August 2009 |archive-date=September 23, 2008 |archive-url=https://web.archive.org/web/20080923033905/http://www.economics.ox.ac.uk/members/cameron.hepburn/Hepburn%20(2006,%20Oxrep)%20Regulation%20by%20P%20or%20Q.pdf |url-status=dead }} Garnaut stated that full auctioning will provide greater transparency and accountability and lower implementation and transaction costs as governments retain control over the permit revenue. Auctions of units are more flexible in distributing costs, provide more incentives for innovation, lessen the political arguments over the allocation of economic rents, and reduce tax distortions.{{cite journal |last1=Kerr |first1=Suzi |last2=Cramton |first2=Peter |year=1998 |title=Tradable Carbon Permit Auctions: How and Why to Auction Not Grandfather |url=http://www.rff.org/documents/RFF-DP-98-34.pdf |url-status=live |journal=Discussion Paper Dp-98-34 |publisher=Resources For the Future. |archive-url=https://web.archive.org/web/20030926014125/http://www.rff.org/Documents/RFF-DP-98-34.pdf |archive-date=2003-09-26 |quote=An auction is preferred to grandfathering (giving companies permits based on historical output or emissions), because it allows reduced tax distortions, provides more flexibility in distribution of costs, provides greater incentives for innovation, and reduces the need for politically contentious arguments over the allocation of rents.}} Recycling of revenue from permit auctions could also offset a significant proportion of the economy-wide social costs of a cap and trade scheme.{{cite journal |last=Stavins |first=Robert N. |year=2008 |title=Addressing climate change with a comprehensive US cap-and-trade system |url=https://ageconsearch.umn.edu/record/42920/files/67-08.pdf |url-status=live |journal=Oxford Review of Economic Policy |volume=24 |issue=2 24 |pages=298–321 |doi=10.1093/oxrep/grn017 |archive-url=https://web.archive.org/web/20200510083447/https://ageconsearch.umn.edu/record/42920/files/67-08.pdf |archive-date=2020-05-10 |hdl-access=free |hdl=10419/53231}}

The perverse incentive of grandfathering can be alleviated through auctioning.

Regulatory agencies run the risk of issuing too many emission credits, which can result in a very low price on emission permits.{{Cite book |title=Building a low-carbon economy – The UK's contribution to tackling climate change |date=December 2008 |publisher=Committee on Climate Change |pages=140–149 |chapter=Chapter 4: Carbon markets and carbon price |access-date=2010-04-26 |chapter-url=http://www.theccc.org.uk/reports/building-a-low-carbon-economy |archive-url=https://web.archive.org/web/20100525004110/http://www.theccc.org.uk/reports/building-a-low-carbon-economy |archive-date=May 25, 2010 |url-status=live}} This reduces the incentive that permit-liable firms have to cut back their emissions. On the other hand, issuing too few permits can result in an excessively high permit price. An argument has been made for a hybrid instrument having a price floor and a price ceiling. However, a price-ceiling safety value removes the certainty of a particular quantity limit of emissions.{{cite book |author=Bashmakov, I. |title=Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change |publisher=IPCC |year=2001 |editor=B. Metz |chapter=6. Policies, Measures, and Instruments |display-authors=etal |access-date=2010-04-26 |display-editors=etal |chapter-url=http://www.grida.no/climate/ipcc_tar/wg3/237.htm |archive-url=https://web.archive.org/web/20090805204427/http://www.grida.no/climate/ipcc_tar///wg3/237.htm |archive-date=2009-08-05 |url-status=dead}}

File:Map of carbon taxes and emissions trading systems worldwide (2024).png |language=en}}{{Legend|#773391|ETS and carbon tax implemented}}{{Legend|#002f60|ETS implemented}}

{{Legend|#c80021|Carbon tax implemented}}{{Legend|#caaed4|ETS or carbon tax under consideration or under development}}]]

{{see also|Criticism of the Kyoto Protocol#Criticism of Carbon Trade}}

File:2009-11-30_-_Chicago_Climate_Justice_activists_in_Chicago_-_Cap'n'Trade_protest_011.jpg building in Chicago Loop]]

Emissions trading has been criticized for a variety of reasons. For one, it has been argued that climate change requires more radical solutions than pollution trading schemes, and that systemic changes must be made to reduce fossil fuel usage.{{Cite web |title=Carbon Trade Watch |url=http://www.carbontradewatch.org/ |url-status=live |archive-url=https://web.archive.org/web/20100501132900/http://www.carbontradewatch.org/ |archive-date=May 1, 2010 |access-date=April 28, 2010}} At the same time, carbon credits have been seen as enabling large companies to pollute the environment at the expense of local communities.{{Cite journal |last=Lohmann |first=Larry |date=2006-12-05 |title=A licence to carry on polluting? |url=https://www.newscientist.com/article/mg19225805.900-a-licence-to-carry-on-polluting.html |journal=New Scientist |volume=2580 |archive-url=https://web.archive.org/web/20090130024533/http://www.newscientist.com/article/mg19225805.900-a-licence-to-carry-on-polluting.html |archive-date=2009-01-30 |access-date=2010-07-17}} [http://www.thecornerhouse.org.uk/resource/carry-polluting Alt URL] {{Webarchive|url=https://web.archive.org/web/20110501115055/http://www.thecornerhouse.org.uk/resource/carry-polluting|date=2011-05-01}} Carbon trading has also been criticised as a form of colonialism, in which rich countries maintain their levels of consumption while getting credit for carbon savings in inefficient industrial projects.{{Cite journal |author=Liverman, D.M. |year=2008 |title=Conventions of climate change: constructions of danger and the dispossession of the atmosphere |url=http://www.eci.ox.ac.uk/~dliverma/CV/JHGE07-17.pdf |url-status=dead |journal=Journal of Historical Geography |volume=35 |issue=2 |pages=279–296 |doi=10.1016/j.jhg.2008.08.008 |archive-url=https://web.archive.org/web/20091204180524/http://www.eci.ox.ac.uk/~dliverma/CV/JHGE07-17.pdf |archive-date=2009-12-04 |access-date=2009-08-08}}

Groups such as the Corner House have argued that the market will choose the easiest means to save a given quantity of carbon in the short term, which may be different from the means to reduce climate change.{{Cn|date=July 2024}} In September 2010, campaigning group FERN released "Trading Carbon: How it works and why it is controversial"{{Cite web

|url=http://www.fern.org/tradingcarbon

|title=Trading Carbon

|access-date=December 17, 2010

|archive-date=April 27, 2011

|archive-url=https://web.archive.org/web/20110427190546/http://www.fern.org/tradingcarbon

|url-status=live

}}{{Full citation needed|date=November 2012}} which compiles many of the arguments against carbon trading. According to Carbon Trade Watch, carbon trading has had a "disastrous track record". The effectiveness of the EU ETS was criticized, and it was argued that the CDM had routinely favoured "environmentally ineffective and socially unjust projects".{{Cite web |author=Carbon Trade Watch |date=November 2009 |title=Carbon Trading – How it works and why it fails |url=http://www.carbontradewatch.org/publications/carbon-trading-how-it-works-and-why-it-fails.html |url-status=dead |archive-url=https://web.archive.org/web/20170825052419/http://www.carbontradewatch.org/publications/carbon-trading-how-it-works-and-why-it-fails.html |archive-date=2017-08-25 |access-date=2010-08-04 |publisher=Dag Hammarskjöld Foundation}}

Some groups have claimed that non-existent emission reductions can be recorded under the Kyoto Protocol due to the surplus of allowances that some countries possess. For example, Russia had a surplus of allowances due to its economic collapse following the end of the Soviet Union. Other countries could have bought these allowances from Russia, but this would not have reduced emissions. In practice, as of 2010, Kyoto Parties had not yet chosen not to buy these surplus allowances.{{Cite web

|title=Industrialised countries will collectively meet 2010 Kyoto target

|author=PBL

|date=16 October 2009

|publisher=Netherlands Environmental Assessment Agency (PBL) website

|url=http://www.pbl.nl/en/dossiers/COP13Bali/moreinfo/Industrialised-countries-will-collectively-meet-2010-Kyoto-target.html

|access-date=2010-04-26

|url-status=dead

|archive-url=https://web.archive.org/web/20100409000327/http://www.pbl.nl/en/dossiers/COP13Bali/moreinfo/Industrialised-countries-will-collectively-meet-2010-Kyoto-target.html

|archive-date=2010-04-09

}}

The complexity of cap and trade schemes around the world has resulted in the uncertainties around such schemes in Australia, Canada, China, the EU, India, Japan, New Zealand, and the US. As a result, some organizations have had little incentive to innovate and comply, resulting in an ongoing battle of stakeholder contestation for the past two decades.{{Cite journal|last1=Teeter|first1=Preston|last2=Sandberg|first2=Jorgen|date=2016|title=Constraining or Enabling Green Capability Development? How Policy Uncertainty Affects Organizational Responses to Flexible Environmental Regulations|journal=British Journal of Management|volume=28|issue=4|pages=649–665|doi=10.1111/1467-8551.12188|s2cid=157986703|url=http://wrap.warwick.ac.uk/93826/1/WRAP-constraining-enabling-green-policy-flexible-Sandberg-2017.pdf|access-date=August 6, 2021|archive-date=May 6, 2020|archive-url=https://web.archive.org/web/20200506055116/http://wrap.warwick.ac.uk/93826/1/WRAP-constraining-enabling-green-policy-flexible-Sandberg-2017.pdf|url-status=live}}

Proposals for alternative schemes to avoid the problems of cap-and-trade schemes include Cap and Share,{{Clarify|date=April 2010|reason=what is this?}} which was considered by the Irish Parliament in 2008, and the Sky Trust schemes.Ray Barrell, Alan Barrett, Noel Casserly, Frank Convery, Jean Goggin, Ide Kearney, Simon Kirby, Pete Lunn, Martin O'Brien and Lisa Ryan. 2009. Budget Perspectives, Tim Callan (ed.)

Carbon emission trading without border adjustments for exports leads to reduced global competitiveness for carbon-intensive products.{{cite journal | last=Evans | first=Stuart | last2=Mehling | first2=Michael A. | last3=Ritz | first3=Robert A. | last4=Sammon | first4=Paul | title=Border carbon adjustments and industrial competitiveness in a European Green Deal | journal=Climate Policy | volume=21 | issue=3 | date=16 March 2021 | issn=1469-3062 | doi=10.1080/14693062.2020.1856637 | pages=307–317}}

The Financial Times published an article about cap-and-trade systems, which argued that "Carbon markets create a muddle" and "...leave much room for unverifiable manipulation".{{Cite web |date=2007-04-26 |title=Carbon markets create a muddle |url=http://www.ft.com/intl/cms/s/0/4b80ee18-f393-11db-9845-000b5df10621.html#axzz2mrZT2VcE |url-status=dead |archive-url=https://archive.today/20150507125639/http://www.ft.com/intl/cms/s/0/4b80ee18-f393-11db-9845-000b5df10621.html%23axzz2mrZT2VcE |archive-date=2015-05-07 |access-date=2009-04-03 |publisher=Financial Times}} Emissions trading schemes have also been criticised for the potential of creating a new speculative market through the commodification of environmental risks through financial derivatives.Larry Lohmann: Uncertainty Markets and Carbon Markets. Variations on Polanyian Themes, New Political Economy, first published August 2009, [http://www.thecornerhouse.org.uk/summary.shtml?x=565040 abstract] {{Webarchive|url=https://web.archive.org/web/20100216182311/http://www.thecornerhouse.org.uk/summary.shtml?x=565040|date=February 16, 2010}} and [http://www.thecornerhouse.org.uk/pdf/document/NPE2high.pdf full text] {{Webarchive|url=https://web.archive.org/web/20091221181251/http://www.thecornerhouse.org.uk/pdf/document/NPE2high.pdf|date=December 21, 2009}}{{Clarify|date=April 2010|reason=why is this a criticism?}}

Annie Leonard's 2009 documentary The Story of Cap and Trade criticized carbon emissions trading for the free permits to major polluters giving them unjust advantages, cheating in connection with carbon offsets, and as a distraction from the search for other solutions.{{cite web |author=Annie Leonard |year=2009 |title=The Story of Cap and Trade |url=http://www.storyofstuff.com/capandtrade/capandtrade.php |url-status=dead |archive-url=https://web.archive.org/web/20101103024644/http://storyofstuff.com/capandtrade/capandtrade.php |archive-date=2010-11-03 |access-date=2010-10-31 |publisher=The Story of Stuff Project}}

In China, some companies started artificial production of greenhouse gases with sole purpose of recycling and gaining carbon credits. Similar practices happened in India. Earned credit were then sold to companies in US and Europe.{{Cite web |title=Carbon-Credits System Tarnished by WikiLeaks Revelation |url=http://www.scientificamerican.com/article.cfm?id=carbon-credits-system-tarnished-wikileaks |url-status=live |archive-url=https://web.archive.org/web/20110930021029/http://www.scientificamerican.com/article.cfm?id=carbon-credits-system-tarnished-wikileaks |archive-date=September 30, 2011 |access-date=September 28, 2011 |website=Scientific American}}{{Cite web |date=November 24, 2010 |title=Imminent EU proposals to clamp down on fridge gas scam |url=http://euobserver.com/884/31347 |url-status=live |archive-url=https://web.archive.org/web/20230729235326/https://euobserver.com/world/31347 |archive-date=July 29, 2023 |access-date=September 28, 2011}}

Corporate and governmental carbon emission trading schemes have been modified in ways that have been attributed to permitting money laundering to take place.[http://www.saigon-gpdaily.com.vn/International/2010/7/83958/ "Carbon trading used as money-laundering front: experts" www.saigon-gpdaily.com.vn] {{webarchive|url=https://web.archive.org/web/20100828063745/http://www.saigon-gpdaily.com.vn/International/2010/7/83958/|date=August 28, 2010}}I. Lippert. [http://opus.bibliothek.uni-augsburg.de/opus4/files/2199/Lippert2013Enacting_Environments.pdf Enacting Environments: An Ethnography of the Digitalisation and Naturalisation of Emissions] {{Webarchive|url=https://web.archive.org/web/20230117052903/http://opus.bibliothek.uni-augsburg.de/opus4/files/2199/Lippert2013Enacting_Environments.pdf|date=January 17, 2023}}. University of Augsburg, 2013.

{{Main|Garnaut Climate Change Review|Carbon Pollution Reduction Scheme|Clean Energy Bill 2011}}

In 2003 the New South Wales (NSW) state government unilaterally established the New South Wales Greenhouse Gas Abatement Scheme{{cite web |date=2010-01-04 |title=The Greenhouse Gas Reduction Scheme |url= http://greenhousegas.nsw.gov.au/ |url-status=live |archive-url= https://web.archive.org/web/20100107022148/http://www.greenhousegas.nsw.gov.au/ |archive-date= January 7, 2010 |access-date=2010-01-16 |publisher=Greenhouse Gas Reduction Scheme Administrator |location= NSW}} to reduce emissions by requiring electricity generators and large consumers to purchase NSW Greenhouse Abatement Certificates (NGACs). This has prompted the rollout of free energy-efficient compact fluorescent lightbulbs and other energy-efficiency measures, funded by the credits. This scheme has been criticised by the Centre for Energy and Environmental Markets (CEEM) of the University of New South Wales (UNSW) because of its lack of effectiveness in reducing emissions, its lack of transparency and its lack of verification of the additionality of emission reductions.{{Cite web |last1=Passey |first1=Rob |last2= MacGill |first2= Iain |last3= Outhred |first3= Hugh |year= 2007 |title= The NSW Greenhouse Gas Reduction Scheme: An analysis of the NGAC Registry for the 2003, 2004 and 2005 Compliance Periods |url= http://www.ceem.unsw.edu.au/content/userDocs/CEEM_DP_070827_000.pdf |url-status= dead |series= CEEM discussion paper DP_070822 |publisher= The UNSW Centre for Energy and Environmental Markets (CEEM) |archive-url= https://web.archive.org/web/20090929115757/http://www.ceem.unsw.edu.au/content/userDocs/CEEM_DP_070827_000.pdf |archive-date= 2009-09-29 |access-date= 2009-11-03 |place= Sydney}}

Prior to the 2007 federal election, both the incumbent Howard Coalition government and the Rudd Labor opposition promised to implement an emissions trading scheme (ETS). Labor won the election, and the new government proceeded to implement an ETS. The new Rudd government introduced the Carbon Pollution Reduction Scheme, which the Liberal Party of Australia (now led by Malcolm Turnbull) supported. Tony Abbott questioned an ETS, advocating a "simple tax" as the best way to reduce emissions.{{cite news |last1= Thompson |first1= Jeremy |date= 7 June 2011 |title= Abbott defends carbon tax interview |work= ABC News |url= http://www.abc.net.au/news/2011-06-07/abbott-defends-carbon-tax-interview/2749496 |url-status=live |access-date=25 September 2015 |archive-url= https://web.archive.org/web/20210814074407/https://www.abc.net.au/news/2011-06-07/abbott-defends-carbon-tax-interview/2749496 |archive-date= August 14, 2021}} Shortly before the carbon vote, Abbott defeated Turnbull in a leadership challenge (1 December 2009), and from there on the Liberals opposed the ETS. This left the Rudd Labor government unable to secure passage of the bill, and it was subsequently withdrawn.

Julia Gillard defeated Rudd in a leadership challenge, becoming Federal Prime Minister in June 2010. She promised that she would not introduce a carbon tax, but would look to legislate a price on carbon[http://www.theaustralian.com.au/national-affairs/julia-gillards-carbon-price-promise/story-fn59niix-1225907522983?nk=e21f67eabda601256acf18353808020c "Julia Gillard's carbon price promise"] {{Webarchive|url= https://web.archive.org/web/20150318062251/http://www.theaustralian.com.au/national-affairs/julia-gillards-carbon-price-promise/story-fn59niix-1225907522983?nk=e21f67eabda601256acf18353808020c|date= March 18, 2015}}, The Australian, 20 August 2010. when taking the government to the 2010 election. In the first Australian hung-parliament result in 70 years, the Gillard Labor government required the support of crossbenchers - including the Greens. One requirement for Greens' support was a carbon price, which Gillard proceeded with in forming a minority government. A fixed carbon-price would proceed to a floating-price ETS within a few years under the plan. The fixed price lent itself to characterisation as a "carbon tax", and when the government proposed the Clean Energy Bill in February 2011,{{cite news |last= Leslie |first= Tim |date= 2011-02-24 |title= Gillard unveils Carbon Price Details |newspaper=ABC News |url= http://www.abc.net.au/news/stories/2011/02/24/3147523.htm |url-status=dead |access-date= August 6, 2021 |archive-url= https://web.archive.org/web/20110701072656/http://www.abc.net.au/news/stories/2011/02/24/3147523.htm |archive-date= July 1, 2011}} the opposition denounced it as a broken election promise.{{cite news |last= Hudson |first= Phillip |date= 2011-02-26 |title= Tony Abbott calls for election on carbon tax |newspaper=Herald Sun |url= http://www.heraldsun.com.au/news/national/pm-gambles-on-carbon-tax-slug/story-e6frf7l6-1226011659564 |url-status=live |access-date=2011-05-05 |archive-url= https://web.archive.org/web/20110501072417/http://www.heraldsun.com.au/news/national/pm-gambles-on-carbon-tax-slug/story-e6frf7l6-1226011659564 |archive-date=May 1, 2011}}

The Lower House passed the bill in October 2011{{cite news |last= Johnston |first= Matt |date= October 12, 2011 |title= Carbon tax bills pass lower house of federal Parliament |newspaper=Herald Sun |url= http://www.heraldsun.com.au/news/more-news/carbon-tax-bills-pass-lower-house-of-federal-parliament/story-fn7x8me2-1226164570957 |access-date=October 12, 2011}} and the Upper House in November 2011.{{cite news |author= AAP with Reuters |date= 2011-11-08 |title= Carbon tax gets green light in Senate |work= Sydney Morning Herald |url= http://www.smh.com.au/business/carbon-tax-gets-green-light-in-senate-20111108-1n4rp.html |url-status=live |access-date=August 6, 2021 |archive-url= https://web.archive.org/web/20210621172709/https://www.smh.com.au/business/carbon-tax-gets-green-light-in-senate-20111108-1n4rp.html |archive-date=June 21, 2021}} The Liberal Party vowed to repeal the bill if elected.{{cite news |date=2011-10-02 |title=Opposition vows to repeal carbon tax |newspaper=Sydney Morning Herald |url= http://news.smh.com.au/breaking-news-national/opposition-vows-to-repeal-carbon-tax-20111002-1l3dl.html |url-status=live |access-date=August 6, 2021 |archive-url= https://web.archive.org/web/20150206012435/http://news.smh.com.au/breaking-news-national/opposition-vows-to-repeal-carbon-tax-20111002-1l3dl.html |archive-date=February 6, 2015}} The bill thus resulted in passage of the Clean Energy Act, which possessed a great deal of flexibility in its design and uncertainty over its future.

The Liberal/National coalition government elected in September 2013 promised to reverse the climate legislation of the previous government.[http://indymedia.org.au/2013/09/20/abbott-governments-first-actions-trash-climate-change-education-carbon-pricing "Abbott Government's first actions: trash climate change education, carbon pricing"] {{Webarchive|url= https://web.archive.org/web/20210923172958/https://indymedia.org.au/2013/09/20/abbott-governments-first-actions-trash-climate-change-education-carbon-pricing|date=September 23, 2021}}, Indymedia Australia, 20 September 2013. Accessed 8 November 2013. In July 2014, the carbon tax was repealed - as well as the Emissions Trading Scheme (ETS) that was to start in 2015.{{cite web |date= 7 July 2014 |title= Carbon tax scrapped: PM Tony Abbott sees key election promise fulfilled after Senate votes for repeal |url= http://www.abc.net.au/news/2014-07-17/carbon-tax-repealed-by-senate/5604246 |url-status= live |archive-url= https://web.archive.org/web/20220715084904/https://www.abc.net.au/news/2014-07-17/carbon-tax-repealed-by-senate/5604246 |archive-date=July 15, 2022 |access-date=25 September 2015 |work=ABC News}}

The Canadian provinces of Quebec and Nova Scotia operate an emissions trading scheme. Quebec links its program with the US state of California through the Western Climate Initiative.

The Chinese national carbon trading scheme is the largest in the world. It is an intensity-based trading system for carbon dioxide emissions by China, which started operating in 2021.{{Cite web |title=China National ETS |url=https://icapcarbonaction.com/en/?option=com_etsmap&task=export&format=pdf&layout=list&systems%5B%5D=55 |url-status=live |archive-url=https://web.archive.org/web/20190603010735/https://icapcarbonaction.com/en/?option=com_etsmap&task=export&format=pdf&layout=list&systems[]=55 |archive-date=June 3, 2019}} The initial design of the system targets a scope of 3.5 billion tons of carbon dioxide emissions that come from 1700 installations.{{Cite web |date=January 18, 2018 |title=China Looks Towards Next Steps For Implementing National Carbon Market |url=https://www.ictsd.org/bridges-news/bridges/news/china-looks-towards-next-steps-for-implementing-national-carbon-market |url-status=dead |archive-url=https://web.archive.org/web/20180908100207/https://www.ictsd.org/bridges-news/bridges/news/china-looks-towards-next-steps-for-implementing-national-carbon-market |archive-date=September 8, 2018 |website=ICTSD}} It has made a voluntary pledge under the UNFCCC to lower CO₂ per unit of GDP by 40–45% in 2020 when comparing to the 2005 levels.{{cite web |date=September 2014 |title=China could launch national carbon market in 2016 |url=http://www.climatechangenews.com/2014/09/01/china-could-launch-national-carbon-market-in-2016/ |url-status=live |archive-url=https://web.archive.org/web/20210225050412/https://www.climatechangenews.com/2014/09/01/china-could-launch-national-carbon-market-in-2016/ |archive-date=February 25, 2021 |access-date=August 6, 2021 |website=CLIMATE HOME}}

In November 2011, China approved pilot tests of carbon trading in seven provinces and cities—Beijing, Chongqing, Shanghai, Shenzhen, Tianjin, as well as Guangdong Province and Hubei Province, with different prices in each region.{{Cite journal |last=Andrews-Speed |first=Philip |date=November 2014 |title=China's Energy Policymaking Processes and Their Consequences |url=http://nbr.org/publications/element.aspx?id=790 |url-status=live |journal=The National Bureau of Asian Research Energy Security Report |archive-url=https://web.archive.org/web/20180722184814/http://nbr.org/publications/element.aspx?id=790 |archive-date=July 22, 2018 |access-date=December 24, 2014}} The pilot is intended to test the waters and provide valuable lessons for the design of a national system in the near future. Their successes or failures will, therefore, have far-reaching implications for carbon market development in China in terms of trust in a national carbon trading market. Some of the pilot regions can start trading as early as 2013/2014.{{cite news |date=July 11, 2011 |title=Factbox: Carbon trading schemes around the world |work=Reuters |url=https://www.reuters.com/article/us-carbon-schemes-idUSTRE76A2GJ20110711 |url-status=live |access-date=25 September 2015 |archive-url=https://web.archive.org/web/20150924154118/http://www.reuters.com/article/2011/07/11/us-carbon-schemes-idUSTRE76A2GJ20110711 |archive-date=24 September 2015}} National trading is expected to start in 2017, latest in 2020.

The effort to start a national trading system has faced some problems that took longer than expected to solve, mainly in the complicated process of initial data collection to determine the base level of pollution emission.{{Cite news |last=Feng |first=Emily |date=December 19, 2017 |title=China moves towards launch of carbon trading scheme |website=Financial Times |url=https://www.ft.com/content/cd549b9a-e088-11e7-a8a4-0a1e63a52f9c |url-status=live |access-date=August 6, 2021 |archive-url=https://web.archive.org/web/20210826045854/https://www.ft.com/content/cd549b9a-e088-11e7-a8a4-0a1e63a52f9c |archive-date=August 26, 2021}} According to the initial design, there will be eight sectors that are first included in the trading system: chemicals, petrochemicals, iron and steel, non-ferrous metals, building materials, paper, power and aviation, but many of the companies involved lacked consistent data. Therefore, by the end of 2017, the allocation of emission quotas have started but it has been limited to only the power sector and will gradually expand, although the operation of the market is yet to begin.{{Cite web |date=December 19, 2017 |title=China to Launch World's Largest Emissions Trading System |url=https://unfccc.int/news/china-to-launch-world-s-largest-emissions-trading-system |url-status=live |archive-url=https://web.archive.org/web/20210308102206/https://unfccc.int/news/china-to-launch-world-s-largest-emissions-trading-system |archive-date=March 8, 2021 |access-date=August 6, 2021 |website=UNFCCC}} In this system, Companies that are involved will be asked to meet target level of reduction and the level will contract gradually.

{{excerpt|European Union Emission Trading Scheme}}

Trading is set to begin in 2014 after a three-year rollout period. It is a mandatory energy efficiency trading scheme covering eight sectors responsible for 54 per cent of India's industrial energy consumption. India has pledged a 20 to 25 per cent reduction in emission intensity from 2005 levels by 2020. Under the scheme, annual efficiency targets will be allocated to firms. Tradable energy-saving permits will be issued depending on the amount of energy saved during a target year.{{update inline|date=February 2022}}

Japan as a country does not have a compulsory emissions trading scheme. The government in 2010 (the Hatoyama cabinet) had planned to introduce one, but the plan lost momentum after Hatoyama resigned as prime minister, due partly from industrial opposition,{{Cite journal |last=Watanabe |first=Rie |date=2012-01-01 |title=14. Northeast Asia: A. Japan |url=https://doi.org/10.1093/yiel/yvt038 |url-status=live |journal=Yearbook of International Environmental Law |volume=23 |issue=1 |pages=454 |doi=10.1093/yiel/yvt038 |issn=0965-1721 |archive-url=https://web.archive.org/web/20230729235317/https://academic.oup.com/yielaw/article-abstract/23/1/451/1669076?redirectedFrom=fulltext |archive-date=July 29, 2023 |access-date=May 31, 2022|url-access=subscription }} and was eventually shelved. Japan has a voluntary scheme. Furthermore, the Kyoto Prefecture has a voluntary emissions trading scheme.{{Cite web |title=Japan: Greenhouse gas emissions trading schemes {{!}} White & Case LLP |url=https://www.whitecase.com/publications/insight/japan-greenhouse-gas-emissions-trading-schemes |url-status=live |archive-url=https://web.archive.org/web/20220517133726/https://www.whitecase.com/publications/insight/japan-greenhouse-gas-emissions-trading-schemes |archive-date=May 17, 2022 |access-date=2022-05-31 |website=www.whitecase.com |language=en}}

Two regional mandatory schemes exist however, in Tokyo and Saitama Prefecture. The city of Tokyo consumes as much energy as "entire countries in Northern Europe, and its production matches the GNP of the world's 16th largest country". A cap-and-trade carbon trading scheme launched in April 2010 covers the top 1,400 emitters in Tokyo, and is enforced and overseen by the Tokyo Metropolitan Government.[http://www.sei-international.org/mediamanager/documents/Publications/china-cluster/SEI-FORES-2012-China-Carbon-Emissions.pdf China's Carbon Emission Trading] {{Webarchive|url=https://web.archive.org/web/20171030223803/https://www.sei-international.org/mediamanager/documents/Publications/china-cluster/SEI-FORES-2012-China-Carbon-Emissions.pdf|date=October 30, 2017}}, 2012. Phase 1, which was similar to Japan's voluntary scheme, ran until 2015.{{cite news |date=11 February 2010 |title=Tokyo CO2 credit trading plan may become a model |work=Reuters |url=https://www.reuters.com/article/us-climate-japan-idUSTRE61A3XG20100211 |url-status=live |access-date=25 April 2017 |archive-url=https://web.archive.org/web/20210308125335/https://www.reuters.com/article/us-climate-japan-idUSTRE61A3XG20100211 |archive-date=March 8, 2021}} Emitters had to cut their emissions by 6% or 8% depending on the type of organization; from 2011, those who exceed their limits were required to buy matching allowances, or invest in renewable-energy certificates, or offset credits issued by smaller businesses or branch offices.{{cite news |author=Business Green |date=2010-04-08 |title=Tokyo kicks off carbon trading scheme |newspaper=The Guardian |url=https://www.theguardian.com/environment/2010/apr/08/tokyo-carbon-trading-scheme |url-status=live |access-date=2010-12-29 |archive-url=https://web.archive.org/web/20210727151710/https://www.theguardian.com/environment/2010/apr/08/tokyo-carbon-trading-scheme |archive-date=July 27, 2021}} Polluters that failed to comply were liable up to 500,000 yen in fines plus credits for 1.3 times excess emissions.{{cite web |title=Urban Environment and Climate Change – Publications |url=http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTURBANDEVELOPMENT/EXTUWM/0,,contentMDK:22447034~menuPK:6722836~pagePK:210058~piPK:210062~theSitePK:341511,00.html |url-status=live |archive-url=https://web.archive.org/web/20190124100858/http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTURBANDEVELOPMENT/EXTUWM/0,,contentMDK:22447034~menuPK:6722836~pagePK:210058~piPK:210062~theSitePK:341511,00.html |archive-date=January 24, 2019 |access-date=25 September 2015}} In its fourth year, emissions were reduced by 23% compared to base-year emissions.{{cite web |title=Emissions Trading Worldwide ICAP Status Report 2015 |url=https://icapcarbonaction.com/images/StatusReport2015/ICAP_Report_2015_02_10_online_version.pdf |url-status=dead |archive-url=https://web.archive.org/web/20210308170639/https://icapcarbonaction.com/images/StatusReport2015/ICAP_Report_2015_02_10_online_version.pdf |archive-date=March 8, 2021 |access-date=August 6, 2021}} In phase 2 (FY2015–FY2019), the target was expected to increase to 15–17%. The aim was to cut Tokyo's carbon emissions by 25% from 2000 levels by 2020.

One year after Tokyo launched its cap-and-trade scheme, the neighbouring Saitama Prefecture launched a highly similar scheme. The two schemes are connected.

{{excerpt|New Zealand Emissions Trading Scheme|paragraphs=1-5}}

South Korea's national emissions trading scheme officially launched on January 1, 2015, covering 525 entities from 23 sectors. With a three-year cap of 1.8687 billion tCO₂e, it now forms the second-largest carbon market in the world, following the EU ETS. This amounts to roughly two-thirds of the country's emissions. The Korean emissions trading scheme is part of the Republic of Korea's efforts to reduce greenhouse gas emissions by 30% compared to the business-as-usual scenario by 2020.

{{excerpt|UK Emissions Trading Scheme|paragraphs=1-5}}

{{See also|Climate change in the United States}}

The American Clean Energy and Security Act (H.R. 2454), a greenhouse gas cap-and-trade bill, was passed on 26 June 2009 in the House of Representatives by a vote of 219–212. The bill originated in the House Energy and Commerce Committee. It was introduced by Representatives Henry A. Waxman and Edward J. Markey.{{cite web |date=2009-06-01 |title=The American Clean Energy and Security Act (H.R. 2454) |url=http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1633&catid=155&Itemid=55 |url-status=dead |archive-url=https://web.archive.org/web/20160205215439/http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1633&catid=155&Itemid=55 |archive-date=February 5, 2016 |access-date=2010-06-14 |publisher=Energycommerce.house.gov}} The political advocacy organizations FreedomWorks and Americans for Prosperity, funded by brothers David and Charles Koch of Koch Industries, encouraged the Tea Party movement to focus on defeating the legislation.{{cite book |last1=Dryzek |first1=John S. |author-link1=John Dryzek |title=The Oxford Handbook of Climate Change and Society |last2=Norgaard |first2=Richard B. |author-link2=Richard Norgaard |last3=Schlosberg |first3=David |date=2011 |publisher=Oxford University Press |isbn=9780199683420 |page=154}}{{cite news |last=Mayer |first=Jane |author-link=Jane Mayer |date=30 August 2010 |title=Covert Operations: The billionaire brothers who are waging a war against Obama |url=http://www.newyorker.com/magazine/2010/08/30/covert-operations |url-status=live |archive-url=https://web.archive.org/web/20220321092211/https://www.newyorker.com/magazine/2010/08/30/covert-operations |archive-date=March 21, 2022 |access-date=20 March 2015 |magazine=The New Yorker}} Although cap and trade also gained a significant foothold in the Senate via the efforts of Republican Lindsey Graham, Independent and former Democrat Joe Lieberman, and Democrat John Kerry,{{cite news |last=Lizza |first=Ryan |date=11 October 2010 |title=As the World Burns: How the Senate and the White House missed their best chance to deal with climate change |url=http://www.newyorker.com/reporting/2010/10/11/101011fa_fact_lizza |url-status=live |archive-url=https://web.archive.org/web/20140630210522/http://www.newyorker.com/reporting/2010/10/11/101011fa_fact_lizza |archive-date=June 30, 2014 |access-date=August 6, 2021 |magazine=The New Yorker}} the legislation died in the Senate.{{cite journal |author=Turin, Dustin R. |year=2012 |title=The Challenges of Climate Change Policy: Explaining the Failure of Cap and Trade in the United States With a Multiple-Streams Framework |url=http://www.studentpulse.com/articles/656/3/the-challenges-of-climate-change-policy-explaining-the-failure-of-cap-and-trade-in-the-united-states-with-a-multiple-streams-framework |url-status=live |journal=Student Pulse |volume=4 |issue=6 |archive-url=https://web.archive.org/web/20160525051828/http://www.studentpulse.com/articles/656/3/the-challenges-of-climate-change-policy-explaining-the-failure-of-cap-and-trade-in-the-united-states-with-a-multiple-streams-framework |archive-date=May 25, 2016 |access-date=August 6, 2021}}

President Barack Obama's proposed 2010 United States federal budget wanted to support clean energy development with a 10-year investment of US$15 billion per year, generated from the sale of greenhouse gas emissions credits. Under the proposed cap-and-trade program, all GHG emissions credits would have been auctioned off, generating an estimated $78.7 billion in additional revenue in FY 2012, steadily increasing to $83 billion by FY 2019.{{cite web |title=President's Budget Draws Clean Energy Funds from Climate Measure |url=http://www.renewableenergyworld.com/rea/news/article/2009/03/presidents-budget-draws-clean-energy-funds-from-climate-measure |url-status=live |archive-url=https://web.archive.org/web/20150114203327/http://www.renewableenergyworld.com/rea/news/article/2009/03/presidents-budget-draws-clean-energy-funds-from-climate-measure |archive-date=January 14, 2015 |access-date=2009-04-03 |publisher=Renewable Energy World}} The proposal was never made law. Failing to get congressional approval for such a scheme, President Barack Obama instead acted through the United States Environmental Protection Agency to attempt to adopt the Clean Power Plan, which does not feature emissions trading. The plan was subsequently challenged by the administration of President Donald Trump.

In 2006, the California State Legislature adopted the California Assembly Bill 32 (AB32), the Global Warming Solutions Act that let to a statewide cap-and-trade program that began in 2012. California and Quebec linked their cap-and-trade programs in 2014, sharing one carbon market. Bang, Guri, et al. “California’s Cap-and-Trade System: Diffusion and Lessons.” Global Environmental Politics, vol. 17, no. 3, Aug. 2017, pp. 12–30. EBSCOhost, https://doi-org.lib-e2.lib.ttu.edu/10.1162/GLEP_a_00413.

In 2021, Washington state instituted its own emissions trading system, which it called "cap-and-invest." Revenue from the auctioning of carbon allowances is directly invested in programs intended to address climate change.

In the United States, most polling shows large support for emissions trading."[https://www.washingtonpost.com/wp-dyn/content/article/2009/06/24/AR2009062403648.html Majority of Poll Respondents Say U.S. Should Limit Greenhouse Gases] {{Webarchive|url=https://web.archive.org/web/20210131212957/https://www.washingtonpost.com/wp-dyn/content/article/2009/06/24/AR2009062403648.html|date=January 31, 2021}}", The Washington Post. 25 June 2009."[https://blogs.wsj.com/environmentalcapital/2009/08/11/poll-position-new-zogby-poll-shows-71-support-for-waxman-markey/ Poll Position: New Zogby Poll Shows 71% Support for Waxman-Markey] {{Webarchive|url=https://web.archive.org/web/20200731130830/https://blogs.wsj.com/environmentalcapital/2009/08/11/poll-position-new-zogby-poll-shows-71-support-for-waxman-markey/|date=July 31, 2020}}", The Wall Street Journal. 11 Aug. 2009"[http://climate.yale.edu/news/poll-americans-support-strong-climate-energy-policies Poll: Americans Support Strong Climate, Energy Policies]", Yale Climate & Energy Institute {{webarchive|url=https://web.archive.org/web/20120128201527/http://climate.yale.edu/news/poll-americans-support-strong-climate-energy-policies|date=2012-01-28}}"[http://www.politifact.com/truth-o-meter/statements/2009/sep/03/ibdeditorialscom/ibd-editorial-board-claims-cap-and-trade-unpopular/ IBD editorial board claims that cap-and-trade is unpopular in America] {{Webarchive|url=https://web.archive.org/web/20190503114122/https://www.politifact.com/truth-o-meter/statements/2009/sep/03/ibdeditorialscom/ibd-editorial-board-claims-cap-and-trade-unpopular/|date=May 3, 2019}}", PolitiFact

{{Portal|Energy}}

• Business action on climate change
• Carbon tax
• Low carbon power generation
• Personal carbon trading

{{Reflist}}

• [https://webarchive.nationalarchives.gov.uk/ukgwa/20060213210707/www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm The Stern Review on the economics of climate change] – Chapters 14 and 15 have extensive discussions on emission trading schemes and carbon taxes
• [https://web.archive.org/web/20160101222214/https://www.iea.org/topics/climatechange/subtopics/emissionstradingandcdm/ Emissions Trading and CDM] – International Energy Agency

{{climate change}}

Category:Emissions trading

Category:Carbon finance