Comparative market analysis of carbon markets: EU ETS and CDM, in light of institutional economics

Abstract

Carbon market refers to carbon trade from Kyoto Protocol and other emission reduction and allowances programs. These instruments are an attempt to reduce the concentration of greenhouse gases in the atmosphere. Because of the importance of these tools to solve the problem of global warming, the focus of this research is to compare European Emission Trade Scheme (EU ETS) and the Clean Development Mechanism (CDM) carbon markets. In order to conclude about the advantages and disadvantages of each program, the study will focus on the efficiency of each mechanism by presenting the rules and existing organizations. This research is justified because it intends to identify the reasons that justify the European Emission Trade Scheme (ETS) has emission reduction volume and number of stakeholders far superior than carbon market resulting from the process of the Clean Development Mechanism. The CDM is chosen in other instruments in this research, first of ali due to it is an Kyoto Protocol mechanism, which, despite its limitations is a relevant universal program in these days, besides that it is related to projects built in developing countries even if they do not have reduction targets. On the other hand, EU ETS was chosen due to it is the most relevant carbon market program in terms of emission reductions volume. To fulfill the goals, this survey will rely on the theoretical support of Institutional Economics (IE), due to this theory stress the importance of institutional arrangements - organizations, institutions, rules of the game, power relations - in order to understand economic problems. Because of tools provided by IE it will be used to understand EU ETS and CDM. (AU)