Carbon trading: Current schemes and future developments

This paper looks at the greenhouse gas (GHG) emissions trading schemes and examines the prospects of carbon trading. The first part of the paper gives an overview of several mandatory GHG trading schemes around the world. The second part focuses on the future trends in carbon trading. It argues that the emergence of new schemes, a gradual enlargement of the current ones, and willingness to link existing and planned schemes seem to point towards geographical, temporal and sectoral expansion of emissions trading. However, such expansion would need to overcome some considerable technical and non-technical obstacles. Linking of the current and emerging trading schemes requires not only considerable technical fixes and harmonisation of different trading systems, but also necessitates clear regulatory and policy signals, continuing political support and a more stable economic environment. Currently, the latter factors are missing. The global economic turmoil and its repercussions for the carbon market, a lack of the international deal on climate change defining the Post-Kyoto commitments, and unfavourable policy shifts in some countries, cast serious doubts on the expansion of emissions trading and indicate that carbon trading enters an uncertain period.

► The paper provides an extensive overview of mandatory emissions trading schemes around the world.
► Geographical, temporal and sectoral expansion of emissions trading are identified as future trends.
► The expansion requires considerable technical fixes and harmonisation of different trading systems.
► Clear policy signals, political support and a stable economic environment are needed for the expansion.
► A lack of the post-Kyoto commitments and unfavourable policy shifts indicate an uncertain future for carbon trading.