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Market making via regulation: The role of the state in carbon markets

Authors

  • Markus Lederer

    Corresponding author
    1. Technical University Darmstadt, Darmstadt, Germany
      Markus Lederer, Technical University Darmstadt, Residenzschloss, Am Marktplatz 15, Darmstadt 64283, Germany. Email: lederer@pg.tu-darmstadt.de
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Markus Lederer, Technical University Darmstadt, Residenzschloss, Am Marktplatz 15, Darmstadt 64283, Germany. Email: lederer@pg.tu-darmstadt.de

Abstract

Proponents as well as critics of carbon trading underestimate the institutional and political underpinnings of evolving carbon markets. Based on institutionalist approaches, this paper argues that the strong embeddedness of carbon markets explains why certain characteristics (positive and negative) materialize. Focusing on the actors who initiate and who influence carbon markets, this article also shows that currently only states and intergovernmental agreements provide the necessary regulation for carbon markets to exist and to work. Today, neither market actors nor NGOs nor public private partnerships have the political power to set up, regulate or capture evolving market structures. Thus, whether or not market-based instruments bring about the desired results depends on good public regulation, which is – at least up to now – represented by the state. Four instances of the commodification of carbon serve as illustrations: the European Union Emission Trading System (EU ETS); the Clean Development Mechanism (CDM); the voluntary market; and new sectoral approaches, particularly Reducing Emissions from Deforestation and Degradation (REDD+).

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