Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Ana Yábar Sterling, Pedro Herrera, Janet E. Milne and Hope Ashiabor
Chapter 11: Towards sustainable carbon markets: requirements for effective, efficient, and fair emissions trading schemes
Although economists have emphasized the merits of emissions trading for decades (Tietenberg 2006), and they have even proven emissions trading schemes’ (ETS) applicability, for example in traditional clean air policy in the USA (Ellerman et al. 2000), it took until the Kyoto Protocol of 1997 to introduce this instrument in climate policy. The EU ETS of 2005 was the first supranational carbon market, but the results were ambiguous in terms of efficiency, effectiveness, and distribution for the first two trading phases; however, significant improvements are expected after 2012 (Ellerman et al. 2010). Besides the EU, carbon markets are implemented, for example in Japan, New Zealand, and the northeastern USA, while their use is considered in many other countries. Despite their merits, the detrimental ecological, economic, and distributional effects of ETS have been heavily criticized (Altvater and Brunnengräber 2008). While some critique is exaggerated, still most carbon markets in practice are not based on ambitious sustainability criteria. Nevertheless, effective, efficient, and just climate protection is undoubtedly necessary, because unrestrained climate change will cause unpredictable and irreversible damage to the ecosystems (IPCC 2007), induce adaptation costs way beyond the costs of mitigation (Stern 2007), and inflict unethical harm to present as well as future generations (WCED 1987). Despite ongoing debates on the definition of sustainability and the even widespread abuse of the term (Pezzey and Toman 2002), the definition by the Brundtland Commission (WCED 1987: 43) and the operationalization by Munasinghe (1992) are still helpful.
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