Will Carbon Trading Work?

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Nearly every nation, including the United States, signed and ratified the United Nations Framework Convention on Climate Change. In signing this treaty, countries set a goal of stabilizing greenhouse gases in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Nobody said it would be easy, and countries have since struggled to agree on how to meet this goal. Despite the challenges and the large amount of work still to be done, carbon trading holds the greatest promise for reaching an international agreement to fulfill this pledge.

A total of 27 nations, with 500 million people speaking 23 languages, are currently trading carbon as part of the EU ETS. Other countries are moving in the same direction. New Zealand, Australia, Japan, and Canada are well on their way to establishing carbon trading programs. In the United States, both state and federal governments are moving toward carbon trading. Both John McCain and Barack Obama have endorsed carbon trading, as have the leadership of the House and Senate. In addition, states representing more than half the population of the US are currently in the process of adopting their own carbon trading programs, either individually or in alliances with other states.  

Carbon trading has also provided a means to engage developing countries. The Clean Development Mechanism (CDM) has provided a means of using private capital to fund projects that reduce emissions in developing nations. In doing so, the CDM has helped draw developing nations into understanding that carbon has a value, that reducing it makes economic sense, and that first-world investors can help build the advanced technologies necessary to reduce emissions.

With broad support across the US, other developed nations, and developing nations, emissions trading shows the greatest promise for reducing global greenhouse gas emissions. Addressing climate change and reducing carbon is not costless. In order to preserve GDP growth, we need to keep reduction costs low. The atmosphere does not mind where reductions take place, and there are low-cost opportunities across the globe. International private sector trading is the best way to identify and capture these opportunities.