The Transformative Potential Of Emissions Trading

In the paper "The Transformative Potential of Emissions Trading", Wuppertal Institute's Lukas Hermwille, Wolfgang Obergassel and Christof Arens posit that limiting global warming well below 2 degrees or even 1.5 degrees requires a fundamental transformation of global socio-economic systems. This need for transformation has been taken up by international climate policy.

The article synthesises criteria of transformational change from transformation research and climate finance agencies. On this basis, the article conducts a multi-criteria evaluation of the transformative potential of the EU ETS, the world's currently largest market-based mitigation instrument. From this case it can be inferred that emission trading can "destabilise" incumbent high-emission practices but their 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 was 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 contributes to further carbon lock-in.

The paper "The Transformative Potential of Emissions Trading" was published in "Carbon Management" and is available for download.