Carbon markets—basic principles and future developments
Produced in partnership with Navraj Singh Ghaleigh of Senior Lecturer in Climate Law, University of Edinburgh
Carbon markets—basic principles and future developments

The following Environment practice note Produced in partnership with Navraj Singh Ghaleigh of Senior Lecturer in Climate Law, University of Edinburgh provides comprehensive and up to date legal information covering:

  • Carbon markets—basic principles and future developments
  • Brexit impact
  • Details for emissions trading and carbon pricing
  • Basic principles
  • Future developments
  • EU ETS—prospects
  • Paris Agreement—Article 6
  • Future of the Kyoto Protocol
  • Brexit and the EU ETS, carbon price support and the carbon emissions tax

Brexit impact

As of exit day (31 January 2020), the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has entered an implementation period, during which it continues to be subject to EU law. This has an impact on this content. For further guidance, see Practice Note: Brexit—impact on environmental law and News Analysis: Brexit Bulletin—key updates, research tips and resources.

Details for emissions trading and carbon pricing

For further information on the impact of Brexit on emissions trading and carbon pricing, see Practice Note: Brexit—emissions trading and carbon pricing.

Basic principles

Carbon markets operate within the ‘science’ of economics, the study of the allocation of scarce resources between competing ends (Lionel Robbins, An Essay on the Nature & Significance of Economic Science (2nd edn, revised and extended, 1949), Ch 1.3).

Within this framework, a decent environment is just such a scarce resource. The core claim of carbon markets is that by assigning property rights to greenhouse gas emissions (‘putting a price on carbon’), market actors can allocate the use of this property in a cost-effective way. Accordingly, a given emissions objective (say, reducing emissions by 90% by 2050) is achieved at the lowest cost.

By putting a price on carbon, markets generate climate-friendly incentives such as discouraging the use of carbon-intensive activities, and encouraging investment in the low-carbon economy such that when

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