Carbon Trading and Carbon Market

Abstract The Kyoto Protocol aims to present three flexible implementation mechanisms in an effort to address climate change, and thus generate a market incorporating carbon emissions as a product: joint implementation (JI); a clean development mechanism (CDM); and an international emissions trade (IET). The carbon market has rapidly developed and expanded to become the new star of global trade: in 2011, trading volume stood at 10.3 billiontCO2, with transactions amounting to $176 billion. Some current regional carbon markets include the European Union Emission Trading Scheme (EU ETS), the New South Wales (NSW), and the Regional Greenhouse Gas Initiative (RGGI); China has also tried to establish a domestic carbon trading market and has been piloting a carbon emission trading scheme since 2011. Carbon pricing lies at the heart of carbon market operation; therefore, this article analyzes challenging issues in today's carbon markets, including allowances, energy prices, and special events and also provides policy recommendations for establishing a carbon trading market.