50 Shades of Green Part I: Carbon

Posted: 27 Mar 2020

Date Written: March 2, 2019


Beyond the well-known excess allowances and cases of fraud, carbon markets also have major conceptual issues, some of which are unresolvable such as the in-existence of a price signal.

Carbon taxes suffer from some of the same flaws and are therefore only marginally better.

As carbon becomes an asset class, carbon markets are also likely to be more vulnerable than traditional markets to market failures and abrupt losses of confidence from investors, with a high risk of contagion to other asset classes and the wider economy.

The unresolvable nature of some of the issues seriously questions the idea that carbon markets can ever meet their environmental and social objectives. This calls into question the current push to create new offset markets linked to the Paris Agreement at the COP25 and offsets for aviation emissions.

The logical conclusion should be to abandon carbon markets for more robust alternatives, such as traditional binding regulations.

Keywords: Ets, Carbon, Offset, Tax, Climate

JEL Classification: F38, F42, F64, F65, G15, G18, G23

Suggested Citation

Hache, Frederic, 50 Shades of Green Part I: Carbon (March 2, 2019). Available at SSRN: https://ssrn.com/abstract=3547406

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