Carbon Trading: Who Gets What, When, and How?

The six articles in this special issue shed a fascinating light on the global diffusion of carbon trading and advance our political understanding of emissions trading systems (ETSs) all over the world. They show the various interactions and spillovers that occur and that push for the extension of carbon trading to more sectors and more countries, now including such diverse jurisdictions as China, Vietnam, Kazakhstan, New Zealand, and California. The studies also highlight the role of learning and how choices about design are very often deeply rooted in domestic politics. The authors thus nicely combine analyses of international top-down processes with an understanding of national circumstances and local power structures.

In this forum piece, I want to push the argument that carbon trading is a highly political, multi-actor, and multilevel process. ETSs are artificial and would not exist without public regulation, but thanks to various analyses like the ones in this special issue, we know in much more detail who gets what, when, and how (Lasswell 1936). In the following sections, I will build on these insights and try to highlight, on the one hand, where we still need more research, and on the other, what follows for the politics of carbon markets. I will first recapitulate why carbon markets have been set up in the first place and why they have been criticized so strongly. Then I will describe the current regulatory trends at the national level, before global aspects of emissions trading are highlighted. Lastly, I will contemplate the question of who benefits from carbon trading.

Why (Not) Trade Carbon?

Trading carbon is one way of dealing with the danger of climate change, and particularly at the transnational level, various forms of interventions have evolved, which include ETSs but go beyond market-based approaches (Bulkeley et al. 2014). Trading carbon seems to be the most contested form of climate politics. On the one hand, there is a convincing economic argument to be made that emissions trading is an efficient and effective instrument for mitigation (OECD 2016). On the other hand, in theory as well as in practice, various problems arise (Aldy and Stavins 2012). Currently, prices in all ETSs, but particularly in the European one (EU ETS), are very low; thus, investors are reluctant and politicians are doubtful what to do. Also, criminal activities have surfaced in many of these nascent markets, and various civil society groups—for example, Carbon Trade Watch (www.carbontradewatch.org/)—are hostile toward carbon trading (Böhm 2013). Critics thus argue that the diffusion of market mechanisms resembles "flogging a dead horse," or in the words of Oscar Reyes, watching "Carbon Market zombies stumble on" (Reyes 2012, 28). Even more fundamentally, trading carbon is for some the final attempt to use capitalist means to solve problems that capitalism has brought about in the first place (Klein 2014; Lohmann 2009). Critics of carbon markets thus often plead for non-market-based alternatives, such as degrowth strategies or top-down regulation (e.g., Jackson 2009).

Nevertheless, emission trading is a fact and is very much in vogue; it may even best represent what Bernstein has labeled "liberal environmentalism" (Bernstein 2002), or Newell and Paterson's proposed "climate capitalism" (Newell and Paterson 2010). In 2016 seventeen ETSs were in operation, covering 9 percent of all greenhouse gases, and in 2017 this number could reach 15 percent (ICAP 2017, 22). In 89 out of 160 Intended National Determined Contributions that were issued before the 2015 climate conference in Paris, carbon markets were either considered or planned (ICAP 2016, 25–26). In nineteen jurisdictions an ETS is actually working (ICAP 2017, 19). One should, however, be careful not to extrapolate a linear growth trend, since the cases of Australia and New Zealand show that regression is also possible, and Australia has even repealed its plans to set up an ETS.

Furthermore, the articles in this volume show that the establishment of an ETS is only one instrument that governments are prepared to employ. In California, for example, the ETS is even considered to be only a "backstop," there to "sweep up remaining cuts...