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Evolution of international carbon markets: Lessons for the Paris Agreement

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Publication Date: 07-2019

First peer-reviewed overview of the history of international market mechanisms. The paper assesses how the Paris Agreement can greatly benefit from the past experience with international market mechanisms for greenhouse gas emissions reductions and related regulatory systems. Thereby, the authors highlight the following four periods with specific challenges: 1) the period from 1997–2004, in which the Clean Development Mechanism and Joint Implementation were operationalized, 2) the period between 2005 and 2011, in which the carbon markets expanded massively creating demand for the private sector, 3) the  collapse in carbon prices between 2012 and 2014, and 4) a gradual stabilization of the international climate regime in 2015–2018. The study reveals that future carbon markets will face both old challenges, such as supply-demand balance, environmental integrity, transaction costs, and new ones, like interactions with other policies and national targets, and sectoral/policy baselines and additionality checks preventing hot air proliferation.

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