Certifications Public Policy

A puzzling question about free markets and regulation

Carbon markets date back to the 1960s. Ronald Coase1 applied his idea of a pricing mechanism for the allocation of radio frequencies to questions of public harms such as environmental damages.2 The idea then saw improvement in the context of carbon markets in the 1960s/1970s.3

So, the mechanisms upon which modern carbon markets build are consistent with thinking by Ronald Coase, a fierce advocate of free markets.

The idea of carbon trading was not sufficient for real-life efforts to emerge. It floated in the limbo of environmental governance until the emergence of the concept of sustainable development in the late-1980s, upon suggestion by the United Nations World Commission on Environment and Development in the ‘Brundtland Report’.4 Interest in carbon markets increased since, and later governmental efforts like the Kyoto Protocol gave it strength.

So, carbon markets faced a problem of scale, which governmental efforts helped to solve.

Does that make carbon markets a defence of both free markets and regulation at once?

Photo by NeONBRAND on Unsplash.
  1. Coase, R. (1959) The Federal Communications Commission. Journal of Law & Economics 2, pp. 17–24.
  2. Coase, R. (1959) The Problem of Social Cost. Journal of Law & Economics 3(1).
  3. Calel, R. (2013) Carbon Markets: A Historical Overview. Wiley Interdisciplinary Reviews: Climate Change 4(2), p. 109.
  4. WCED (1987) Our Common Future: The World Convention on Environment and Development (WCED). Oxford, U.K.: Oxford University Press.