Note on Carbon Markets

The consequences of global climate change are far-reaching, spanning outcomes of precipitation pattern changes to the spread of vector-borne diseases into new territory. Various data suggest if climate change is not addressed in a timely manner, then business models will need to change drastically. This paper addresses various attempts governments have used to target greenhouse gas reduction, resulting in either “compliance” or “voluntary” markets. An outline of the Kyoto Protocol presents topics of market regulation, reductions measurement and carbon auditing, with implications for firms in Kyoto-compliant nations. Voluntary markets control their emissions through purchase of Verified Emissions Reductions (VERs), which is significantly different than operating in a compliance market with its own challenges and benefits. Carbon market research is still in its infancy and challenges abound in terms of public perception, trust, pricing, cost of certification, scale and functionality.