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Diminishing Returns: Carbon Market Crisis and the Future of Market-Dependent Climate Change Finance

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  • Kate Ervine

Abstract

The current and future costs of meeting climate change mitigation needs in the global South vastly exceed levels of available funding from public sources in the North. As a possible solution to this problem, policy-makers and various observers have pushed increasingly for the adoption of market-based carbon financing strategies, with the United Nations Clean Development Mechanism (CDM) representing the most consistent application of this approach to date. Nevertheless, market-based carbon finance remains highly volatile given its heavy dependence on conditions in the broader global carbon market which remains in the throes of a devastating crisis, earning carbon the distinction of 2011s worst performing global commodity. By demonstrating that it is through carbon's market price that finance-generating investment in the CDM is largely derived, and which also determines the ex post value of CDM projects, this paper argues for the decoupling of climate change finance from carbon's market value. The need to do so is particularly pressing since, it is argued, the current crisis in the global carbon market reflects an embedded crisis tendency in that market, born in part from the political machinations through which it was born and which leaves it prone to persisting crises of oversupply.

Suggested Citation

  • Kate Ervine, 2014. "Diminishing Returns: Carbon Market Crisis and the Future of Market-Dependent Climate Change Finance," New Political Economy, Taylor & Francis Journals, vol. 19(5), pages 723-747, September.
    • Handle: RePEc:taf:cnpexx:v:19:y:2014:i:5:p:723-747
    DOI: 10.1080/13563467.2013.849672
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    1. Alexandre Kossoy & Pierre Guigon, "undated". "State and Trends of the Carbon Market 2012," World Bank Publications - Reports 13336, The World Bank Group.
    2. Nicholas Linacre & Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2011," World Bank Publications - Reports 13400, The World Bank Group.
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    4. Karsten Neuhoff & Anne Schopp & Rodney Boyd & Kateryna Stelmakh & Alexander Vasa, 2012. "Banking of Surplus Emissions Allowances: Does the Volume Matter?," Discussion Papers of DIW Berlin 1196, DIW Berlin, German Institute for Economic Research.
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    6. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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    1. Trotter, Ian Michael & da Cunha, Dênis Antônio & Féres, José Gustavo, 2015. "The relationships between CDM project characteristics and CER market prices," Ecological Economics, Elsevier, vol. 119(C), pages 158-167.
    2. Sovacool, Benjamin K. & Griffiths, Steve & Kim, Jinsoo & Bazilian, Morgan, 2021. "Climate change and industrial F-gases: A critical and systematic review of developments, sociotechnical systems and policy options for reducing synthetic greenhouse gas emissions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 141(C).

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