Carbon Market and Climate Negotiations. Les Cahiers du PREC no. 3, March 2010

The paper gives an overview of the various types of economic instruments used to tackle environmental problems: regulation, taxes and tradable permits; tracing their origin in economic theory and giving concrete examples of their application in the context of national and international efforts in environmental protection, and more particularly, in climate change mitigation. Specific attention is given to the economic instruments incorporated in the implementation of the Kyoto Protocol to the United Nations Framework Convention on Climate Change: emissions trading, and emissions reduction project financing. While Copenhagen did not deliver the international climate agreement hoped for, in the run up to the next round of negotiations in Mexico 2010, decision makers continue to discuss the fate of the international climate change effort post-2012. Carbon markets, while instruments for inciting efficient emissions reductions, also facilitate the emergence of compromise and will thus play a key role in these international negotiations. (authors)