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This paper investigates the effect of carbon emissions trading in China on the corporate risk-taking level of enterprises involved. The empirical results show that: (a) after the building and running of the carbon emissions trading market, the level of corporate risk-taking of the involved enterprises will perform significant increase; (b) however, there is no evidence currently to show that the increasing corporate risk-taking level after the building of China's carbon emissions trading market results from improving the financing environment of the involved enterprises; (c) non-state-owned enterprises are more willing to take risks than state-owned enterprises (SOEs) when they are simultaneously involved in the carbon market; (d) younger and smaller enterprises are more likely to cope with the uncertainties of this cap-and-trade trading market positively. Our results are robust to a wide series of checks, and hold significant policy implications for enterprises to better cope with the in-depth development of the carbon market.

The Australia-EU Emissions Trading System (ETS) linking negotiation was the first attempt to link ETSs with substantively different designs, and thus provides insights on the possibilities for hete...

© 2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.On the one hand, a large number of companies have committed to achieve net zero emissions and many of them foresee to offset some remaining emissions with carbon credits, suggesting a surge of future demand. Yet, the supply side of the voluntary carbon market is struggling to align its business model with the new legal architecture of the Paris Agreement. This article juxtaposes these two perspectives. It provides an overview of the plans of 482 major companies with some form of neutrality/net zero pledge and traces the struggle on the supply side of the voluntary carbon market to come up with a viable business model that ensures environmental integrity and contributes to achieving the objectives of the Paris Agreement. Our analysis finds that if carbon credits are used to offset remaining emissions against neutrality objectives, these credits need to be accounted against the host countries’ Nationally Determined Contributions (NDCs) to ensure environmental integrity. Yet, operationalizing this approach is challenging and will require innovative solutions and political support. Key policy insights There is a growing mismatch between the faith placed in carbon credits by private sector companies and the continued quest for a common position of the main suppliers of the voluntary carbon market. The voluntary carbon market has not yet found a way to align itself with the new legal architecture of the Paris Agreement in a credible and legitimate way. Public policy support at the national and international level will be needed to operationalize a robust approach for the market’s future activities.

Tackling climate change has provided a key focus for the creation of what the editors of this special issue have termed ‘environmental intangibles.’ This paper focuses on the European Union Emissions Trading System (EUETS), a climate policy that revolves around the issuance and trading of environmental intangibles called emissions allowances. Set up in the mid-2000s, the cap and trade system has experienced many complications. We propose here to explore a particularly contentious issue: the allocation of free allowances. We will see that deciding on allocation rules leads to vivid debates about whether energy-intensive industries in Europe, such as the manufacturing of cement, can remain competitive in the global economy if climate policy is unilaterally enforced. These debates are focused on a phenomenon referred to as the risk of carbon leakage due to loss of competitiveness. Drawing on an empirical enquiry into the workings of policy-making, the paper examines the ways, in which this risk is framed and questioned through lobbying and evidential work. We suggest that the threat to competitiveness posed by the EUETS can neither be established, nor dismissed; a form of under-determination is maintained and carbon leakage as a never-quite-tangible possibility becomes a battleground for protecting European industry over the environment.

The New Zealand Emissions Trading Scheme (NZ ETS) presents an opportunity to compare the theory of linked emissions trading with practice. From 2009 until October 2012 New Zealand was linked to the...

Carbon offsets were designed to be a universal good for a global market, tradable with any form of carbon emission anywhere in the world. This paper shows that emission rights, designed as perfect ...

This paper aims to provide evidence on how the concurrence of multiple carbon markets in Mexico that differ in regulation ―highly regulated, semiregulated, unregulated― can affect the ability of actors to coordinate their actions. It follows the implementation of a carbon-offset project in Mexico called Scolel Te over time. Based on the social exchange theory, we show that the concurrence of multiple carbon markets with different degrees of regulation can influence the tactics or competitive strategies of actors in the network. In particular, it encourages changes in actors’ strategies (balancing operations) in the network to minimize regulatory costs and to become competitive by attracting financial resources to the project. Another finding is that the emergence of an unregulated local carbon market in Mexico creates unintended incentives for actors to adopt less environmentally responsible strategies and avoid participation in more environmentally responsible markets, such as Clean Development Mechanisms (CDMs).

Climate policy will predominantly affect industries that primarily rely on fossil fuels, such as steelmaking. Within these industries, exposure may be different by country according to the energy-intensity of national plants. We estimate the effect of coal prices on steel plant location worldwide and production preferences for BOF, a polluting technology, and EAF, a greener one. A 1% increase in national coal prices reduces BOF installed capacity by around 0.37%, while it has no statistically significant impact on EAF capacity. We simulate the implementation of a stringent European carbon market with no border adjustment and find a non-negligible shift in steel production outside Europe, with a concomitant impact on the technologies employed to produce steel. If applied worldwide, the same policy would primarily affect production in Asia, which relies on BOF and currently benefits from lower coal prices than those expected to emerge in the future.

In general, the certified pathways for the production of sustainable aviation fuels (SAFs) are still far from being competitive with fossil kerosene, although they have the potential to reduce greenhouse gas (GHG) emissions. However, the mitigation costs related to SAFs and how they compete with the carbon credits market remain unclear. The present study addressed these issues, evaluating SAF pathways based on hydrotreatment (HEFA process) of soybean oil, palm oil, used cooking oil (UCO) and beef tallow; dehydration and oligomerization of ethanol (ATJ technology) obtained from sugarcane, lignocellulosic residues, and steel off-gases; and the thermochemical conversion of lignocellulosic residues using the Fischer–Tropsch (FT) process and hydrothermal liquefaction (HTL). Residue-based pathways had lower mitigation costs. Used cooking oil / HEFA had the lowest value (185 USD tCO2e−1), followed by the thermochemical conversion of forestry residues (234–263 USD tCO2e−1). Of the 1G pathways, SAF production from 1G sugarcane ethanol (SC-1G/ATJ) performed better (495 USD tCO2e−1) than oil-based ones. In comparison with the carbon market, the mitigation costs of SAFs are much higher than the current prices or even future ones. However, several concerns about the credibility of the emission units and their effective mitigation effects indicate that SAFs could play an important role in aviation sector goals. Considering the potential of supplying SAF and mitigating emissions, SC-1G/ATJ was suggested as a preferred alternative in the short term. Of the residue-based pathways, tallow / HEFA and FT of forestry residues are suggested as strategic alternatives.

The Western Climate Initiative (WCI) cap-and-trade programme consists of two linked carbon markets in California and Quebec. It is intended to play a central role in reducing greenhouse gas emissio...

This study proposes a bidimensional empirical mode decomposition based conditional value at risk approach to explore the risk spillover effects between carbon market and electricity market. Firstly, bidimensional empirical mode decomposition is applied to decompose the pair of carbon and electricity prices into a series of simple modes with different frequencies. Secondly, conditional value at risk is used to capture the risk spillover effects between carbon market and electricity market at each frequency. The empirical results show that the risks of high frequency modes are higher than those of intermediate and low frequency modes. Carbon market has a positive risk spillover on electricity market, and electricity market has a negative risk spillover on carbon market. For high and low frequency modes, the risk spillover effects from carbon market to electricity market are positive, however those from electricity market to carbon market are negative. For intermediate frequency modes, there are bidirectional negative risk spillover effects between carbon market and electricity market.

The rise of blockchain technology has injected new vitality into the energy market. At present, blockchain projects for distributed photovoltaic power generation and carbon trading are rapidly emerging, but due to the barrier of two markets and the independent operation of such projects in two chains, the two market values cannot be two-way circulation, which is not conducive to the expansion of power trading business and the scale of carbon market. This paper proposed a joint operation mechanism of cross-chain trading, combined distributed photovoltaic power generation market and the carbon market by the blockchain technology. The novelty is to construct two chains which includes the mainchain and sidechain that enables the two markets to share data and circulate value, and to design a two-way anchoring method that achieves equating between carbon trading and electricity trading by cryptocurrency. The simulation studies took the improved IEEE 33 system as an example to simulate transactions on the Ethereum platform, and technically verify the feasibility of cross-chain transactions in these two markets, and use Ether as the settlement currency.

Currently, the development of the carbon market is considered as an urgent requirement because it contributes to creating certain economic values and protecting the environment and sustainable development of a country. In addition, this instrument can also enhance diplomatic relations through scientific, technological and financial investments among countries all over the world. Vietnam is assessed as having potential to reduce its greenhouse gas (GHG) emissions by 9% compared to the Business-As-Usual scenario by 2030 using domestic resources (equivalent to 83.9 million tons of CO2eq). The above-mentioned 9% contribution can be increased by up to 27% (equivalent to 250.8 million tons of CO2eq) if the country can receive the international support through bilateral and multilateral cooperation as well as the implementation of new mechanisms under the Paris Agreement. The paper gives an overview of a number of domestic carbon markets in some countries and assesses the potential for developing Vietnam’s carbon market.

As a result of the awareness of global climate change, many studies have been carried out to avoid this situation. These studies have been carried out intensely since the protocol signed in Kyoto in 2005. Reduction of carbon dioxide emissions from engines operating on fossil fuels, the promotion of using the renewable natural sources such as wind, solar, etc. which are called clean energy, methane gas decompositions, and similar studies are some of these. As the studies increased, funding difficulties began to be seen in supporting the projects. In this context, especially project selection has started to gain importance. When the carbon emission reduction projects are examined, it is seen that forestry and especially forestation projects are very important. Especially, afforestation investments are very important in terms of increasing carbon sinks and many ecosystem services they provide are of great value. The aim of this study is to develop a new mechanism to create a source of financing for afforestation investments. In this context, the Private Pension System Funds was used as a fund-raising tool for the financing of afforestation investments. in this new mechanism, it was aimed that preventing climate change by making all actors gain income. With the implementation of this system, it is thought that the problems in the existing carbon markets will be prevented, the investments on afforestation will increase and also the environmental funds will become widespread.

Addressing climate change and reducing CO2 emissions has become a consensus globally. Among major industrialized countries, policy makers have either deployed or started to contemplate about deploying market-based instruments for climate policy. In that context, the idea of “cap & trade” of the carbon market—alternatively known as emission-trading system (ETS) in Europe—has commanded much attention of late. Theoretically, between the two extreme poles of hierarchy and market, their hybrid in the form of ETS can reduce CO2 emission reductions at lower costs than direct administrative fiat such as mandated installation of emission-reduction technologies. Deployed singularly, the former is about quantities, whereas the latter is about prices. But both are needed to fight against climate change.

This paper analyses net-zero emissions targets adopted in law, proposed in legislation, or reflected in policy documents in 51 countries and the EU to better understand their characteristics, similarities and differences. It examines countries’ experiences with translating net-zero targets into near-term plans and analyses four case studies to show how countries develop and implement different pathways to net-zero. This paper also explores the potential role and associated risks, both for individual countries and globally, of using international carbon markets to help achieve countries’ net-zero targets. The paper concludes that countries are adopting diverse approaches to their net-zero targets and many details are currently unclear, including the balance between emission reductions, removals and the use of international carbon markets in reaching countries’ net-zero targets, and how this may change over the next few decades. The paper concludes that greater clarity on the scope, coverage and detail, in particular how countries plan to meet their net-zero commitments, is important to improve understanding of countries’ net-zero targets, how they interact with each other, and their overall implications for achieving the global temperature goal of the Paris Agreement.

Reporting and review requirements under the Paris Agreement include provisions under Article 13 relating to the implementation and achievement of Parties’ Nationally Determined Contributions (NDCs). Draft texts relating to Article 6.2 relating to Parties’ use of cooperative approaches also include provisions on reporting and review. This document identifies and analyses issues related to the interplay of relevant reporting and review requirements under both Article 13 and Article 6 of the Paris Agreement, as it is important to improve complementarity and ensure consistency between the two sets of reporting and review provisions, as well as to meet the already-agreed principles governing transparency. Regarding reporting, the document highlights options for improving the clarity of the provisions concerning the timing, content, and frequency of the three required types of information under Article 6.2 guidance (i.e., the initial report, annual information, and regular information). Regarding Internationally Transferred Mitigation Outcomes (ITMOs), this document highlights several issues relating to timing and vintages that would need to be addressed to facilitate ITMO reporting and review implementation. Regarding review provisions, this document finds that draft A6.2 guidance could usefully provide further detail on some substantive aspects of the Article 6 review process, such as, e.g., clarifying roles of the Party, the TER team, and the secretariat in the review process.

In the United States, voluntary and compliance carbon markets are being created there is an effort to match producers of carbon credits with those that would like to purchase credits. Each market h...

Given that international collaborative efforts to reduce greenhouse gas (GHG) emissions are urgent and crucial, a critical understanding of challenges and opportunities of linking China’s newly established national ETS with existing domestic or regional ETSs is essential in order to achieve global emission targets, and may attract other jurisdictions to join in global carbon market development. In this backdrop, we analyzed the experiences, lessons, and insights from three key global carbon markets, namely North America, the EU and China, in terms of the barriers to linking the global carbon market, with a focus on China, using thematic analysis. The four most commonly cited linkage design elements (barriers) were the legal basis, monitoring, reporting, and verification, political feasibility, and the price-management mechanism. Like-minded jurisdictions with similar political views and design features will have a higher chance of linking. Additionally, sustaining market liquidity, widening sectoral coverage, minimizing carbon leakage, ensuring offset quality, and a transparent allowance and cap setting rules are crucial steps towards linkage. These outcomes can be used as an ETS linkage-ready design framework for CETS and ETS under development to overcome barriers to future international ETS linkages.

The panel will focus on the role of carbon markets amidst increasing international climate ambition and cooperation, touching upon integration, interdependence, arbitrage and carbon leakage aspects. This session is organised under the framework of our EU funded project LIFE DICET – Deepening international cooperation on emissions trading.

We urgently need to increase the flow of investment to high quality Nature-based Solutions (NbS) that are people led and support biodiversity. NbS has a significant contribution to make to mitigating and adapting to climate change, yet remains dramatically under-invested. Carbon markets such as cap-and-trade, involving carbon offsets, are increasingly considered as mechanisms for financing NbS. However, offsets present a number of problems if poorly implemented. In this session, we will briefly explore the debates around carbon offsets and NbS, and discuss options for a range of finance options that reward high quality Nature-based Solutions, including public financing, the carbon offset market, risk management and blended finances to jumpstart the NbS market.

Carbon markets have played a central role in sustaining the fossil fuel landscape, deepening the climate crisis produced under capitalism. It is therefore vital to have a clear conceptual and empir...

Governments in Ontario and Quebec, two Canadian provinces, have required their fuel distributors to participate in carbon markets and to buy allowances covering their greenhouse gas emissions. The resulting carbon pricing can impose an indirect tax on gasoline retailers through the higher wholesale price they pay. This paper's goal is to measure carbon pricing pass-throughs in Ontario and Quebec's wholesale gasoline markets. Although carbon pricing pass-throughs are uniform within each province, they are higher in Ontario where over-shifting is observed. Higher (lower) levels of pass-throughs in Ontario (Quebec) might be explained by less (more) competitive wholesale gasoline markets.

Blockchain is a distributed digital ledger system that establishes transparent contract processes and facilitates secure but trusted business transactions. Policy‐makers around the world are intrigued by the potential of this emerging technology to solve policy problems, including the challenges of the transition away from centralised, linear models of energy generation and consumption towards decentralised and distributed energy systems. Blockchain has also been promoted as a mechanism to transform carbon markets, yet the focus in this area to date has been on using blockchain to create new carbon market schemes. This paper addresses an important research gap by asking how blockchain could be applied to an existing carbon market. To answer this question, the study uses an established design process to develop an Australian carbon market blockchain design. The paper finds that this design could improve the efficiency, equity and effectiveness of the Australian carbon market. This paper makes an important research contribution to carbon market policy development by developing a blockchain design that could improve how an existing carbon market functions, and the findings presented here are relevant to government and industry stakeholders globally.

We investigate the bidirectional interactions between trading behaviors and carbon prices in the first carbon market, i.e., European Union Emissions Trading Scheme (EU ETS). The trading behaviors of the emitting companies are classified into ‘compliance trading’ and ‘non-compliance trading’ based on their positions, and the behaviors of financial intermediaries are quantified according to the changes in their inventories. We use two AR-EGARCH models and an ARMA-GARCH model to assess the bidirectional interactions between trading behaviors and carbon prices, and three empirical findings are derived. First, since emitting companies can predict their actual demand of a complete phase, ‘compliance trading’ is not affected by the annual nominal compliance demand of allowances, while ‘non-compliance trading’ is influenced by financial intermediaries' inventories and ‘compliance trading’. Second, the allowance prices do have asymmetry effects on the volatilities of emitting companies' trading behaviors. Third, ‘compliance trading’ and the inventories of the financial intermediaries explain the trend of carbon prices, while ‘non-compliance trading’ explains the volatility of carbon prices. The findings could provide valuable managerial implications for managing the carbon markets.

International audience; In 2013, Québec implemented a greenhouse gas (GHG) emissions trading system (QC ETS), despite opposition from industry, which feared loss of competitiveness and warned about job destruction. This article assesses the impact of that carbon regulation on industrial facilities in Québec. Conditional difference-in-differences ordinary least squares regressions show that regulated plants reduced their GHG emissions by about 9.8%, employment by about 6.8% and carbon intensity by about 3.7% more compared to non-regulated plants in the rest of Canada during the period 2013–2015. This suggests that facilities adapted to the new program by improving their technology, but first and foremost by scaling down their activity, which raises questions about the ability of the QC ETS to induce enough environmental investment and innovation in industrial facilities. The results, in terms of employment effects, contrast with the findings of similar studies on the early stages of the European ETS and the British Columbia carbon tax scheme, and this information challenges the initial allocation scheme for permits, in particular, with a view to a green fiscal reform.

International audience; This article analyses the main promises made by climate engineering proponents. First, the author discusses promises made about geoengineering projects, which are designed to alter the global climate swiftly: the ability to reduce uncertainties enough to ensure a less insecure world; the allegedly temporary character of geoengineering technologies. Then, the author depicts a situation where local negative emission technologies (NETs) such as BECCS (bioenergy with carbon capture and storage) gain ground in the climate arenas and on the entrepreneurial landscape; yet these technologies are still in search of a model that would be economically and ecologically viable.; Cet article examine le discours de la promesse que portent les défenseurs de l’ingénierie climatique. Dans un premier temps, l’auteur analyse deux promesses faites au sujet de projets de géo-ingénierie, qui sont conçus pour altérer brusquement le climat global : la promesse d’une réduction des incertitudes suffisante pour garantir un monde moins incertain que le monde climatiquement dérangé par l’humain ; la promesse d’un déploiement provisoire de la géo-ingénierie. Dans un second temps, l’auteur décrit une situation où les possibilités offertes par les technologies d’émissions négatives (NET) locales de type bioénergie avec captage et stockage du carbone (BECCS) suscitent un optimisme dans les travaux de prospective climatique et dans des cercles entrepreneuriaux qui est en décalage avec l’apathie des programmes de recherche et développement sur le sujet.

China formally launched the carbon trading pilots in seven provinces and cities in 2013. Based on the operating situations of international carbon emission trading markets and that in China, this study compares and analyzes the potential risks in the European Union Emission Trading Scheme, California's cap-and-trade system, and the seven regional carbon trading pilots in China. It mainly recognizes market operation risks, risks of uncertain policy expectation, and risks of uncertain mechanism designs existing in China's carbon trading pilots. The carbon market risks are not good for the formation of rational price signals, making it difficult to guide enterprises on how to make low-carbon technology investments. Such risks also affect the effectiveness and functions of carbon markets, which can lead to the non-achievement of national emission reduction goals. China has launched the national carbon emission trading scheme on December 19, 2017. While building the national carbon trading scheme, it is important to fully refer to the experiences of international carbon markets and China's carbon trading pilots apart from strengthening the recognition, control, and supervision of carbon market risks. Doing so can promote the healthy development of China's national carbon trading scheme. Keywords: Carbon trading pilots, Market operation risks, Uncertain policy expectation risks, Uncertain mechanism design risks

Article 6 of the Paris Agreement introduces two international carbon markets that receive extensive attention and are expected to play an important role in the post-2020 climate regime. Three key elements of the two international carbon markets, including the scope, the types of tradable units and the governance, are identified, as the basis to clarify their basic forms. Based on the key issues and their different designs identified in negotiations, this study analyzes the contributions and challenges for China to participate in international carbon markets. Considering the inherent needs of climate change mitigation, climate finance, the development of a green “Belt and Road” and the China South–South cooperation in climate change, along with the existing domestic capacities on market mechanisms, this study puts forward the short-, medium- and long-term development prospects of the two international carbon markets. Keywords: Paris Agreement, International carbon markets, Cooperative approaches, Sustainable development mechanism, Climate change

Energy intensive enterprises (EIEs) need to coordinate the production scheduling with carbon emission in consideration of the carbon market. In this paper, a mixed integer linear programming (MILP) based self-generation (SG) and load scheduling model with consideration of carbon emission permits and time-of-use (TOU) electricity tariffs is proposed to obtain optimal economical and ecological benefits, in which both the electricity cost and the carbon trading cost (CTC) are included in the optimization objective of the model. CPLEX is used to solve the model. Experimental results and analyses show that the proposed integrated model is effective in cutting down total system costs (TSC) and reducing carbon emission, besides that, with less carbon emission in future power grid, the proposed model appears to be better for making economical and ecological benefits.

The voluntary emission reduction (VER) trading mechanism has played an important role in China’s seven pilot carbon markets. From a comprehensive review of the VER trading and offsetting mechanisms...

The Paris Agreement heralds a new era in international climate governance. Yet, the Agreement's implementation rulebook is still under negotiation. During this transition, from the Kyoto Protocol t...

Governance of global natural resources is increasingly hybrid, with complementary public and private sector initiatives layered on landscapes to improve environmental outcomes. The challenge of polycentric land use governance is alignment of goals across diverse governance mechanisms when agricultural producers, public agencies, and corporations have distinct motivations. This case study of soil carbon governance on California rangelands explores a new payment for ecosystem services (PES) initiative led by the food and agriculture industry, called the Ecosystem Services Market Consortium (ESMC). Applying hybrid governance theory to agricultural lands, we conduct an ex-ante policy evaluation of potential policy impact based on (i) alignment between corporate sustainability goals and ranchers’ priorities and (ii) complementarity of the ESMC market with existing public and private policies enabling rangeland conservation. We found corporations developing the PES market to be motivated by carbon insetting, the objectives of which converge with ranchers’ goals of preserving soils. Each policy offers distinct benefits and challenges, with synergies around climate change adaptation and soil health. As a new policy tool, carbon markets like the ESMC are positioned to meet demand for soil health financing, support resilience and ranch productivity, and improve ranchers’ access to soil health data for adaptive management. Given carbon markets’ outcome-based payment structure, we highlight the importance of complementary governance mechanisms that mitigate upfront risk with financial and technical support during the transition period, including Farm Bill cost-share programs and private sector financing tools. This policy evaluation highlights the challenges and opportunities surrounding rangelands soil carbon governance, particularly the trade-offs that ranchers, corporations, and society at large must consider for landscape-scale conservation programs.

Over the last three years, corporate interest in voluntary carbon markets has almost tripled, and this trend has seemed to resist the COVID-19 economic fallout. If managed well, this market has the potential to become a very significant driver of mitigation action, in particular in developing countries, which supply the majority of voluntary carbon offsets. Robust standards and rules can overcome concerns that voluntary carbon markets could lead to company greenwashing and undermine the goals of the Paris Agreement. On the contrary, voluntary corporate investments can encourage more ambitious government climate action, and encourage governments to make more ambitious pledges under the Paris Agreement. Multisectoral mitigation partnerships can ensure the complementarity of public and private action and support policy alignment and investments in priority sectors and regions.

Blockchain technology promises disruptive change to industry and society. Although academic researchers and practitioners have engaged with blockchain for years, actual adoption rates of this technology significantly lag predictions. This paper explores present barriers to blockchain adoption in an industry for which blockchain might be assumed to offer an obvious solution to a globally distributed challenge: the integration of carbon markets. Using technological framing theory as a focusing lens, we investigate the challenges of blockchain adoption in China's developing carbon markets from three expert groups: carbon market experts with blockchain knowledge only, carbon market experts with blockchain projects, and IT experts in carbon markets. Our findings suggest that different expert groups present distinctive and incongruent framing challenges where technical challenges are not the most significant. In exploring this we make contributions to the introduction of a socio-technical perspective in blockchain adoption research and provide practical suggestions to policymakers and practitioners.

Greenhouse gas (GHG) trading markets have been widely discussed for climate change mitigation. However in implementation coverage has not been universal. Agriculture, despite being the source of nearly 25% of net emissions, has not commonly been capped. But it has been mentioned as voluntary source of net emission offsets. Such offsets could arise from action reducing GHG emissions, enhancing sequestration, or producing feedstocks for low emitting bioenergy replacements for fossil based energy. This could be harnessed by setting up voluntary carbon markets that producers could join at their discretion. However, such a scheme could have unintended consequences. We conduct theoretical and empirical analyses of a voluntary “carbon” market examining both intended and unintended effects. We find certain participation rules can stimulate rebound effects from emitters and suppress participation from sequestration and bioenergy producing entities. To overcome this we develop and simulate offset participation limitations that could preclude unintended consequences.

Tradable performance standards are widely used sectoral regulatory policies. Examples include the US lead phasedown, fuel economy standards for automobiles, renewable portfolio standards, low carbon fuel standards, and—most recently—China’s new national carbon market. At the same time, theory and experience with traditional cap-and-trade programs suggests an important role for price limits in the form of floors, ceilings, and reserves. In this paper we develop a simple analytical model to derive the welfare comparison between tradable performance standards and a price-based alternative. This works out to be is a simple variant of the traditional Weitzman prices-versus-quantities result. We use this result to show that substantial gains could arise from shifting two programs, China’s new national carbon market (~60% gain) and the California Low Carbon Fuel Standard (~20% gain), to a price mechanism. This will generally be true when the coefficient of variation in the price under a TPS is larger than 50%. We end with a discussion of implementation issues, including full and partial consignment auctions based on actual and expected output.