The transformative potential of emissions trading

Lukas Hermwille*, Wolfgang Obergassel, Christof Arens

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Limiting global warming to below 2°C or even 1.5°C requires a fundamental transformation of global socio-economic systems. This need for transformation has been taken up by international climate policy. This article synthesizes criteria of transformational change from transition research and climate finance agencies. On this basis, the article conducts a multicriteria evaluation of the transformative potential of the European Union Emissions Trading Scheme (EU ETS), currently the world’s largest market-based climate policy. From this case it can be inferred that emissions trading can “destabilize” incumbent high-emission practices, but its effectiveness in fostering innovation is limited. Furthermore, the analysis shows that details in the arrangements of the scheme such as allocation rules can have a strong detrimental impact on its outcome. If a global carbon market with a uniform price were introduced, this could lead to developing countries “buying in” with large amounts of freely allocated allowances. This, however, has been shown to thwart transformational effects and instead contribute to further carbon lock-in.

Original languageEnglish
Pages (from-to)261-272
Number of pages12
JournalCarbon Management
Volume6
Issue number5-6
DOIs
Publication statusPublished - 2016

Keywords

  • Carbon pricing
  • Emissions trading
  • Marketbased mechanisms
  • Mitigation measures
  • Sustainability transformation

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