Carbon Markets

The most puzzling [and somewhat ironic] question in carbon markets

Carbon markets date back to the 1960s when Ronald Coase’s1 idea of a pricing mechanism for the allocation of radio frequencies in the United States (US), which he then applied to questions of public harms such as environmental damages,2 which saw significant improvement in the context of carbon markets by academics in the late 1960s and 1970s3 and declared interest by the US Environmental Protection Agency since the early 1980s.4

What this means is that the actual mechanisms upon which carbon markets build are consistent with economic theory developed by Ronald Coase, a strong advocate of free markets.

Now, the idea of carbon trading alone was not sufficient for actual efforts to emerge. Instead, it floated in the limbo of environmental governance for nearly three decades 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’.5 This concept allowed cohesion of thinking across environmental sectors and compatibility of environmental and developmental needs. Desire for action rose and so, experimentation with carbon trading started in voluntary terms.

What this means is that carbon markets have always faced a problem of scale. Henceforth, it is reasonable to think that regulation can be used to address this lack.

Does that make carbon markets a defense 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. EPA (1980) Emission Reduction Banking Manual. Washington, DC: US Environmental Protection Agency (EPA); EPA (1982) The Bubble and Its Use with Emission Reduction Banking. Washington, DC: US Environmental Protection Agency (EPA).
  5. WCED (1987) Our Common Future: The World Convention on Environment and Development (WCED). Oxford, U.K.: Oxford University Press.