Carbon Trading: A Study of Trends and Evolution

The global energy landscape is rapidly changing as a result of economic shifts and technological breakthroughs. There has been an increased focus on climate change through the phenomenon of global warming, which is caused by accumulation of green house gases (GHG) in the atmosphere. Efforts have been underway at the international as well as national level for abatement of GHG emissions through cost-effective and sustainable solutions. The UNFCCC with its mandate of a safer future launched the Kyoto Protocol in 1997, to firm-up ongoing efforts for stabilizing the ecosystems. The Protocol commits its Parties through internationally binding emission reduction commitments. The idea was to create an international unified carbon market, which would render a check on the worldwide emission levels. However, actual experience with the markets has revealed that the dream of a global top-down market is far from being realised. Against this backdrop, this paper attempts to review the evolution of carbon markets, through the mechanism of International Emissions Trading. It also highlights some trends and developments that have characterised these markets over the past few years. Overall, the literature seems to signify the emergence of a decentralised bottom-up design of the market. There is a multitude of regional, national and subnational markets in operation, with EU ETS as the frontrunner. Moreover, these systems are starting to link with one another to facilitate the evolution of an international carbon market, in the wake of an unpromising future outlook for Kyoto credits.