The Evolution of Carbon Trading Systems: Waves, Design and Diffusion

FNI Report 9/2015. Lysaker, FNI, 2015, 40 p.

For proponents of the view that the introduction of carbon pricing globally should be a key response to the serious climate change challenge, the post-2010 phase has been a bit mixed. The EU, the emissions trading frontrunner, has experienced increasing trouble.  Still, around the globe, a number of other emissions trading systems have started operating. Not least the problems experienced by the EU ETS have put the spotlight on the design question: how to design systems that produce a stable and reasonably high carbon price while interacting well with other policy instruments. Furthermore, as systems develop at different speeds and with differing design properties, interaction between the systems becomes a pertinent topic, linking up to the long and rich debate in political science about policy diffusion. This report examines the evolving design properties of the EU ETS and emissions trading systems in Australia, California and China, and takes stock of knowledge regarding the role of policy diffusion in shaping these systems. Australia is an interesting case of a proposed system that collapsed under intense domestic political-economic pressures. California is significant as a case of political leadership in the USA. The establishment of seven sub-national pilot systems in China, the world’s biggest greenhouse gas emitter, is potentially of great importance. On the basis of these examinations, the report identifies important gaps in existing knowledge on the role of policy diffusion and contributes to the research agenda in this area.