Ten reasons why carbon markets will not bring about radical emissions reduction

Abstract

Almost two decades since the Kyoto Protocol was adopted, global greenhouse gas emissions are still rising rapidly. We argue that the global climate policy focus on carbon markets has played a significant role in the failure to reduce emissions. There are 16 compliance carbon markets in operation across the world. Many more are planned, although there have been numerous problems with carbon trading, including ineffectiveness, weak regulation and implementation, instances of fraud, little to no emissions reduction and major legitimacy issues for governments and the private sector. In this paper we take a “strong” position, arguing that carbon markets do not have a role to play in a policy scenario that requires radical emissions reductions in order to avoid dangerous greenhouse gas concentrations. We put forward 10 reasons why carbon markets should not be the preferred climate policy choice, which we have collated from positions taken by grassroots social movement organizations, think tanks, NGOs and other political advocacy groups as well as individual scientists and scholars.

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1© 2015 Taylor & Francis
ReseaRch aRticle
Ten reasons why carbon markets will not bring about
radical emissions reduction
Introduction
The global scale and impacts of the climate crisis are
now widely recognized, as is the need to radically reduce
greenhouse gas emissions [1,2]. If we are to avoid danger-
ous climate change, the world will need to dramatically
reduce emissions in the next two to three decades [3].
It is estimated that for an 80% probability of staying
below a “safe” 2°C of temperature increase, the world's
“carbon budget” to 2050 is equivalent to 900 gigatonnes
of carbon dioxide (GtCO2) [4]. And, crucially, a fair
distribution of the carbon-intensive resources we can
feasibly exploit would need to occur in order to avoid
major conflict and severe inequality.
The prevalent mode of climate policy around the
world has been carbon trading. Many carbon trading
mechanisms are operating or are in the process of being
introduced. There are 16 compliance carbon markets
in operation across the world, and a further 16 under
discussion or planned for new jurisdictions [5]. In the
last two decades, numerous problems have arisen with
regard to carbon markets, illustrating weak regulation,
some instances of fraud, little to no emissions reduction
and major legitimacy issues for governments and the
private sector. Thus, the question is: can carbon trading
contribute to the task of rapid decarbonization?
Analysis of carbon trading must be informed by the
magnitude of the problem it is trying to address. As
Cameron Hepburn has noted: “A great deal rides on the
success or failure of this global socioeconomic experi-
ment in commoditizing and trading carbon” [6]. At pre-
sent, the implemented and scheduled emissions trading
schemes and carbon taxes put a carbon price on approxi-
mately 7% of global emissions (3.3 GtCO2e/year) [7]. If
the world's governments were to come to an agreement
for meaningful emissions reduction commitments – as
planned for the 21st Conference of the Parties (COP21)
in Paris in 2015 – carbon trading would likely be prof-
fered as a key mechanism for achieving this. Further,
an expanded globally integrated carbon market is some-
times considered the “ideal” institutional architecture
Carbon Management (2014)
Rebecca Pearse1, & Steffen Böhm2*
Almost two decades since the Kyoto Protocol was adopted, global greenhouse gas emissions are still rising
rapidly. We argue that the global climate policy focus on carbon markets has played a signicant role in the
failure to reduce emissions. There are 16 compliance carbon markets in operation across the world. Many more
are planned, although there have been numerous problems with carbon trading, including ineectiveness,
weak regulation and implementation, instances of fraud, lit tle to no emissions reduction and major legitimacy
issues for governments and the private sector. In this paper we take a “strong” position, arguing that carbon
markets do not have a role to play in a policy scenario that requires radical emissions reductions in order to
avoid dangerous greenhouse gas concentrations. We put forward 10 reasons why carbon markets should
not be the preferred climate policy choice, which we have collated from positions taken by grassroots social
movement organizations, think tanks, NGOs an d other political advocacy groups as well as individual scientists
and scholars.
Keywords: carbon markets  carbon trading  climate change  climate policy  radical emissions reductions
1School of Social Sciences, Universi ty of New South Wales, Sydney, Austra lia, 2052
2Essex Business School, University of Essex, Wivenhoe Park, Colchester, UK.
*Author for correspondence: E-mail: steen@essex.ac.uk

Carbon Management (2014)
2
Research Article Pearse and Böhm
for achieving environmental effectiveness [8]. In con-
trast, we argue that expanding the market will only
exacerbate existing problems. Our paper puts forward
the case against carbon trading. We present 10 reasons
why we believe carbon markets will not contribute to
the task of reducing emissions on the scale necessary.
We recognize that this is a “strong” position to take,
which is often dismissed as “ideological” or “naïve”
[9]. In response, we point out, first, that there are very
good reasons – based on strong empirical and theoreti-
cal analyses – to propose we abandon carbon trading.
In this paper, we summarize and synthesize the exist-
ing evidence base, which has consistently and convinc-
ingly shown the manifold problems with the theory and
practice of carbon markets. Second, all positions on the
topic should be regarded as “ideological,” in the sense
that they are informed by, and indicative of, political
views about the appropriate role of markets in society
[10]. Third, in line with many climate scientists, poli-
cymakers and civil society groups – such as those who
recently presented at the Radical Emissions Reduction
Conference [11] – we believe that time and speed are of
the essence when it comes to reducing global carbon
emissions. With no meaningful emissions reductions
to show for, and evidence of regulatory failure, the
track record of carbon trading is unacceptable. Further
experimentation, attempting to make carbon markets
work, will be far too risky.
A final note on the basis of our perspective. We are
not arguing that carbon trading policy in the abstract
is to blame for society's failure to respond to climate
crisis. There is a systemic and geopolitical backdrop
to climate policy failure. We can point to numerous
interlocking reasons for spiraling emissions and politi-
cal inertia [12,13]. The key obstacles are: the trebling
circulation of fossil fuel capital via the rapid industri-
alization of China, Brazil, India and other emerging
nations, the global boom in “unconventional” gas and
oil, the new dynamics of an emergent multipolar world,
the ongoing refusal of the US to ratify the Kyoto and
Post-Kyoto United Nations Framework Convention on
Climate Change (UNFCCC) agreement, fragmenta-
tion of the UNFCCC negotiations and deficiencies in
carbon accounting rules – for example, the focus on
national production emissions rather than consump-
tion emissions.
However, we will make the case that the type of cli-
mate policy instituted is a crucial part of the puzzle
one is faced with when seeking to understand global
society's failure to deal with the climate crisis. The logic
of carbon trading and chronic “design flaws” in car-
bon markets across the world render it a weak method
of emissions management. More fundamentally, we
argue that this style of reform belies a utopian faith that
marketization can be squared with climate protection,
and a broader political failure to directly harness state
and intergovernmental power to address the systemic
causes of trebling greenhouse gas emissions.
Carbon trading: a brief introduction and history
Carbon trading is a form of market-based regulation
that seeks to incentivize the reduction of greenhouse gas
emissions associated with selected forms of commod-
ity production and exchange. The theoretical basis for
emissions trading is environmental economics, which
is a recent chapter in neoclassical economics, analyzing
ecological degradation and pollution as “externalities”
not reflected in the price of goods exchanged in other-
wise efficient markets. To deal with such externalities,
new methods of environmental valuation and market-
based solutions to protect the environment have been
introduced across the world [14].
In the 1960s, Ronald Coase challenged the view that
government regulation and Pigovian taxes should be the
preferred route to deal with environmental problems
[15]. He argued that optimal economic allocation could
occur through arbitrage between actors if the conditions
of clearly defined property rights and zero transaction
costs were met. Coase's claim was theoretical only and
did not address how or whether the result of collective
bargaining between agents would align with neces-
sary environmental limits. In the next decade, further
intellectual work developed and modified the principle
to include a role for governments in a new practice of
environmental market creation [e.g., 16 –19].
Emissions trading is purported to fold the negative
market externality back into the market via the assign-
ment of property rights to greenhouse emissions. In
carbon trading, a range of greenhouse gases is meas-
ured in a common metric, usually equivalent tonnes of
carbon dioxide (tCO2e). In order to “internalize” the
unacknowledged costs of emissions, these economists
argued that the changed cost structure of production
generated by trade will incentivize changes in market
behavior.
Over the last three decades, a near consensus has
emerged among policymakers that carbon trading
is the optimal, most “cost efficient” means to reduce
emissions. Efficiency (optimal use of scarce resources)
comes from permits for CO2e being tradable. In per-
fectly functioning markets, polluting firms facing high
costs for emissions reduction may buy excess permits
from firms with low costs, which in turn profit from
sale of their excess permits. This arbitrage (the bids and
offers between buyers and sellers) is theorized to pro-
duce net gains for all involved (“welfare”) and create an
equilibrium carbon price at the margin – that is, the
“optimal level of the externality” where marginal net

Ten reasons why carbon markets will not bring about radical emissions reduction Research Article
3
benefits enjoyed by polluting firms are equal to marginal
external costs to society [20].
Economists often argue that carbon trading ensures
environmental integrity better than carbon taxation [21,
Ch. 13]. Carbon taxes rely on governments to set a price
on emissions at optimum levels over time. No quanti-
tative limit on emissions is set. The emissions “cap” in a
cap-and-trade scheme is understood as a more effective
means to create scarcity and efficient allocation of emis-
sions rights. However, this advantage is undermined in
conditions when there is uncertainty about the marginal
costs of supplying a good (in this case, a “safe” level of
greenhouse gas emissions) [22].
Design of carbon markets occurs through domestic
and international law. The emergent pattern in carbon
markets is legislation for cap-and-trade schemes in
developed nations, linked to carbon offset programs
in developing countries. Carbon rights are considered
either permits to emit (the right to emit a defined unit
of greenhouse gases) or rights to emissions reductions
(units representing emissions avoided or stored in
“sinks”). Offset credits can be sold to firms with obli-
gations to reduce their emissions in industries regulated
by cap and trade. Rules that permit linkage to carbon
offsets are central to the “efficient” distribution of costs
[23]. Put another way, offsets contribute to the “flexibil-
ity” in terms of where reductions will be undertaken
[24]. Rules for temporal displacement through banking
and borrowing permits are a second major source of
flexibility [25].
Politically, the popularity of market mechanisms was
established in opposition to “command and control”
regulation, such as installing technology-based envi-
ronmental standards, environmental taxes or legisla-
tive bans on harmful substances and practices. At the
broadest level, preference for carbon markets occurred
in the context of shifting norms and agency bound up
in the reorganization of the global economy from the
1970s [26]. The resulting shift in state preferences for
privatization, deregulation and marketization is part of
what social scientists term “neoliberalism” [for a concise
overview, see 27].
Much of the political advocacy for emissions trading
came from economists active in public institutions in
the 1980s and 1990s. Key proponents include Robert
Stavins, who initiated Project 88 with two US senators.
Project 88 was initially a report, and a series of meet-
ings, discussing the range of market-based mechanisms
for climate mitigation [28,29]. The project assisted in
building the case for SO2 trading in California under
the Clean Air Act 1990 [30,31]. SO2 trading became
the basis for the US’ successful campaign to include
emissions trading in the 1997 Kyoto Protocol to the
UNFCCC.
In Britain, David Pearce was another key actor, co-
authoring the Blueprint for a Green Economy [32]. The
book argued strongly for market-based environmental
regulation, as did his policy work on the design of UK's
first carbon levy in 1990 [33]. Experts in the OECD and
United Nations Conference on Trade and Development
(UNCTAD) were also producing reports analyzing and
advocating for market instruments for emissions man-
agement in the early 1990s [34,35].
In these early days, advocacy by the newly profession-
alized environmental NGOs as well as corporations also
played a key role. The Environmental Defense Fund
and Nature Conservancy argued for emissions trading
in the US. Trading has appealed to these NGOs on the
basis of arguments that cap-and-trade schemes ensure
greater ecological integrity than a carbon tax [6]. The
embrace of marketized models of emissions manage-
ment also reflects a broader trend of green-corporate
partnerships emerging at the time [36]. For example,
the Environmental Defense Fund partnered with BP
in operating its in-house emissions trading scheme
announced in 1997. This and other pilot schemes served
as a way for firms to legitimate emissions trading – their
preferred policy against carbon taxation [37].
Carbon trading is most often conceived as being a
“carrot” that can produce profit, whereas taxes are seen
as a “stick”, producing additional costs for business [6].
A new corporate lobby became attracted to carbon trad-
ing. For instance, the International Emissions Trading
Association (IETA) was created in 1999 to coordinate
businesses specializing in the new task of constructing
carbon markets. These new experiments included the
development of a voluntary market running parallel to
compliance markets.
For European states, carbon trading was also a desir-
able alternative to carbon taxation. Harmonized inter-
national taxes are difficult for countries to agree on and
to implement. And, again, this tax was strongly opposed
by emissions-intensive industries [38]. In the EU, policy-
makers abandoned attempts to reach consensus between
member states on an EU-wide CO2 tax in 1992 [31]. Also
due to US pressure, there was a shift in Europe in the
mid-1990s towards emissions trading schemes.
At an international level, carbon trading appealed to
state officials on the basis that it allows wealth trans-
fers to the developing world (a condition for develop-
ing country consent) and allows for flexibility in the
distribution of emissions abatement (a condition for
developed countries). This element of carbon trading
had been a crucial part of the bargain struck at nego-
tiating table of the UNFCCC. Both emissions trading
and carbon offsets are encoded in the Kyoto Protocol.
Article 17 of the Protocol specified emissions trading
as a means for Annex B nations to reach the protocol's

Carbon Management (2014)
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Research Article Pearse and Böhm
2012 emissions reduction target of an average of 5.2%
below 1990 levels.
The Protocol and new agencies under the UNFCCC
also institutionalized North–South carbon offsetting
through the CDM and Joint Implementation (JI)
[Articles 6 and 12, 39]. The CDM was originally con-
ceived of as a fund for sustainable development, but
the model took on market dimensions in the process of
negotiations. CERs from CDM projects can be sold to
firms or governments and counted toward an Annex I
nation's mitigation targets, as can Emissions Reduction
Units (ERUs) from JI.
The US and Umbrella Group including Japan,
Australia, New Zealand and Canada was instrumental
in ensuring the inclusion of the Flexible Mechanisms
under the 1997 Kyoto Protocol [40]. Considerable oppo-
sition to aspects of carbon trading policy arose within
the Group of 77. For instance, the Alliance of Small
Island States (AOSIS) and Brazil have opposed reliance
on offsets, and Bolivia and Venezuela have opposed car-
bon trading. But there is no unanimity. Developing
country representatives have been leaders in the move-
ment to expand carbon markets to new jurisdictions.
The Coalition for Rainforest Nations’ advocacy of an
incentive-based model for REDD policy since the mid-
2000s is an example of Southern states contributing to
the expansion of carbon markets [41]. These member
states have been engaged in numerous initiatives to
develop institutional arrangements necessary for carbon
market participation and trial REDD at the national
and international level [42].
It is important to note that carbon trading is one
part of a complex, global arena of climate policy, where
multiple types of policy reform are being practiced and
proposed (e.g., technology standards, supports for tech-
nological innovation, removal of public subsidies from
emissions-intensive industries and so on). Our focus on
emissions trading, rather than any other type of climate
policy, or any particular combination of policies, is a
response to the political emphasis placed on emissions
trading through international and national initiatives.
Carbon markets and offset programs continue to
expand worldwide. In 2005, the EU ETS became the
first regional carbon market and is still the most signifi-
cant to this date. There are 16 carbon trading schemes
in operation and a further 16 that are planned across
the world. Most are operating at a regional level [5]. The
most significant national climate policies in terms of
coverage and political emphasis that have been either
installed or debated in recent times have been carbon
trading schemes. Notable examples include Australia,
Canada, Japan, New Zealand, China's trial emissions
trading programs and the potential for state-level emis-
sions trading as part of the US Climate Action Plan.
Intergovernmental organizations, particularly the
World Bank and UN agencies as well as bilateral aid
agencies, have been trialing carbon offset programs
in the developing world since the 1990s. For example,
the World Bank's Prototype Carbon Fund is a public–
private partnership that has served the dual purpose of
carbon market advocacy as well as being an implementa-
tion network for the CDM [43]. This transnational net-
work of six states and 17 corporations developed some
of the first CDM projects and has paved the way for a
spate of such partnerships that have built the ongoing
emphasis on carbon markets. The World Bank Forest
Carbon Partnership Facility (FCPC) and UN-REDD
Programme operate in a similar way. They have run
national programs to trial REDD in anticipation of its
inclusion in a post-Kyoto framework under negotiation
within the UNFCCC.
Finally, we focus critical attention on carbon trad-
ing because some state representatives and civil society
members have opposed an over-reliance on emissions
trading and offsets [41,44]. The background political
issue is North–South burden sharing. This is reflected
in the Kyoto Protocol statements that any purchase of
international credits (“removal units”) and use of emis-
sions trading by Annex B nations should be “supple-
mental to domestic actions” undertaken for the purpose
of meeting the target. This was confirmed in the 2001
Marrakesh Accords [45]. However, quantified definitions
of “supplemental” use have not been agreed to at an
international level. Meanwhile, discussions about “new
market mechanisms” are running in UNFCCC nego-
tiations over a post-Kyoto framework. There is a need
to clarify what, if any, role carbon trading should play
in the task of rapid emissions reduction.
Unpacking the carbon trading critique
In all locations where carbon markets have been
installed, they have attracted criticisms from policy-
makers, think tanks, NGOs, charities and other civil
society advocacy groups. Many of these actors have
argued that carbon markets constitute “climate injus-
tice” in that they do not reduce emissions, and their
practice exacerbates inequalities associated with climate
change and uneven development [46,47]. Opposition has
also come from the political Right. Conservative “Tea
Party”-type protests were held in Australia over the ETS
in 2011. Here, the criticism has been on the basis of
opposition to government regulation.
Importantly, there are a range of different positions
held in environmental and social justice networks,
including a middle ground taken up by some environ-
mental NGOs who see carbon markets as an important
step forward [48]. Many have engaged with details of
policy to improve the environmental integrity and social

Ten reasons why carbon markets will not bring about radical emissions reduction Research Article
5
protections of carbon markets and offset programs.
Others have participated directly in instituting carbon
market initiatives, such as the BP scheme mentioned
above, offset standards and projects for voluntary and
compliance markets.
Numerous experts engage in public policy debates
over carbon pricing, many of them economists and law-
yers acting as advisors, or participants in government
consultation processes. As in NGO networks, expert
communities are diverse in their views. Though the
majority of experts writing on carbon trading focus on
discussions about policy design, a minority have put
forward more fundamental critiques of emissions trad-
ing [e.g., 49–51].
The perspectives of these actors involve implicit
and explicit ideas about what carbon markets are for,
and whose purpose they serve. Economic theory tells
us carbon trading is an effective mechanism for emis-
sions reduction at least cost. However, many scholars
recognize that in practice, tradable permit markets are
political instruments, as much as they are economic
ones [52]. Some have observed that carbon markets are
the outcome of diplomatic bargains, and a vehicle for
coalition building [44,53]. It is commonly implied or
stated that good policy design will require sufficient
political investment and a powerful constituency for
high emissions caps and institutional capacity building
[54]. In contrast, critics argue that carbon markets are,
above all, a means for nation-states and fossil fuel capital
to avoid the task of decarbonization, with effects that
perpetuate uneven development [55–57].
There are also differences in views about what car-
bon markets can potentially deliver. Carbon markets
are flexible and change over time; they do not have
a fixed, abstract essence [58 ,59]. Both economists and
social scientists have emphasized that carbon markets
involve experimentation [6,60]. This experimentation
should involve assessment and debate about whether
they should be an ongoing focus of climate policy. It is
our view that, given the manifold problems with car-
bon trading in theory and practice, there is a case for
abandoning the experiment.
We argue that there is sound theoretical and empirical
evidence to support this “strong” view. We put forward
10 reasons why carbon markets are counterproductive,
which we have collated from the positions expressed
by social movement organizations, think tanks, NGOs
and other political advocacy groups as well as individual
scientists and scholars. The arguments are divided into
two types. First, we put forward evidence that illustrates
that carbon trading has involved flawed practices (the
first five arguments). Second, we put forward arguments
that carbon trading cannot be reformed (the following
five arguments). In doing so, we shift from major design
flaws to more structural and theoretical problems with
the carbon trading experiment. Yet the issues we iden-
tify cannot be neatly divided into problems of design,
on the one hand, and problems of theory and concep-
tion, on the other. Practice and theory, we argue, always
need to be analyzed together when it comes to critically
analyzing the political economy of carbon markets.
Carbon markets as failure
Carbon markets can be seen as a failure in the sense
that they have not delivered on their core aim: to reduce
greenhouse gas emissions. Evidence for direct causal
links between carbon trading markets and emissions
can be difficult to establish. The existing analyses of the
EU ETS show it has fallen well short of the emissions
reduction targets in the first two phases [61,62]. There was
a temporary reduction in emissions in Europe between
2008 and 2010. However, it is widely recognized that
this was mainly due to the downturn in production
caused by the financial crisis [63,64].
In the first phase of the EU ETS (2005–2007), over-
allocation of free permits (EUAs) to participating firms
led to a drop in carbon price to nearly zero in December
2007. Prices have stayed persistently low in phase II
(2008–2012) and problems continue into the third
phase, in large part due to the surplus of approximately
970 million allowances, which have been carried over
into phase III (2013–2020) [61,65]. The 2013 decision
to “backload” 900 million excess permits from the
beginning of phase III to the end will not be enough to
address the still increasing surplus [66].
In New Zealand, the emissions trading scheme in
place since 2008 has not reduced emissions, in large
part because the scheme did not have a cap, involved
limited coverage (including a delay in extending to more
emissions-intensive sectors), and put no limits on inter-
national carbon credits [67,68]. The Australian carbon
trading scheme installed in 2011 and repealed in 2014
was highly likely to have failed to reduce domestic emis-
sions and lock in a fossil fuel economy. Based on the
Australian Federal Treasury's own modeling, emissions
were set to rise until 2028 and reduce marginally by
2050 [69,70]. The majority of emissions reductions were
projected to come from international abatement.
Carbon markets as loophole
Carbon trading enables the developed countries to
appear to be reducing emissions, while passing on the
abatement task to the developing world. Carbon offset-
ting is central to this feature of carbon markets. Offsets
are a loophole and an unjust form of mitigation that dis-
tracts from the central task of transitioning away from
fossil fuel extraction in the North – where emissions
abatement is most politically crucial [see 71–73].

Carbon Management (2014)
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Research Article Pearse and Böhm
While offsets were not heavily relied upon in the EU
in the first two phases, the use of international credits
have increased rapidly and is anticipated to balloon by
2020 [74]. Controversial industrial gas offset projects
involve minor technical adjustments to factories pro-
ducing nylon and refrigerant gases (HFCs) mostly gen-
erated in middle-income countries, China, Brazil and
India. In May 2012, industrial gas projects made up
84% of CDM offset credits (CERs) in the EU ETS [75].
An early conservative estimate for offsets feeding into
the EU was that between 1/3 and 2/3 of carbon credits
bought into the EU ETS did not represent real carbon
reductions [76].
The problems with industrial gas offsets have been
recognized by EU regulators [77]. While industrial gas
offsets were discredited some time ago, the EU has been
slow to remove these offsets in large part due to pressure
from industry, which was then able to flood the mar-
ket with industrial gas credits [78]. Industrial gas offsets
are now excluded from the EU ETS, and participating
firms are now restricted to purchasing credits from Least
Development Countries (LDCs). Like the decision to
backload excess emissions, this is a positive amendment.
However, changes to the linking Directive under phase
III allow for an unprecedented 50% of emissions reduc-
tions to come from offset credits (50% is hardly “sup-
plemental” to domestic reductions). As they stand, these
changes are unlikely to address the structural surplus of
emissions in the scheme [66].
In Australia, international trading was scheduled to
begin in 2015, and up to 50% of emissions rights retired
were allowed to come from international credits, and
use of domestic “carbon farming” offsets was unlimited
[79]. The majority of international credits allowed were
to be EUAs – the very credits over-allocated to firms in
the EU ETS. More generally, Australia's approach to
regulating carbon offsets is shaped by a national protec-
tive agenda to rely on emissions abatement outside fossil
fuel industries, particularly in the land sector [80,81]. In
New Zealand, unlimited offset credits have brought the
carbon market to a halt [82]. In California, plans to link
the state's ETS to REDD offsets continue the tradition
of outsourcing responsibility to reduce emissions to par-
ties in the global South [83,84].
Carbon markets as unjust development
Carbon trading has come with a promise to be a new
mechanism for sustainable development. However, ben-
efits are not widely shared. The distribution of CDM
finance mirrors the historical flow of foreign direct
investment to middle-income countries such as China,
Brazil and India [85]. In practice, sustainable develop-
ment goals are only paid lip service in offset programs
[86–88]. Numerous examples of problems with offsets
have been detailed in NGO and academic studies [see
72,87,88]. For example, Emily Boyd has shown that the
stated goals of sustainable development and community
participation were not realized in two offset projects [89].
She shows local and state barriers to effective and fair
implementation of a land rehabilitation project in Brazil,
and a mismatch between the values of local people and
the values underlying the extension of a conservation
park in Bolivia. The discrepancy between sustainable
development goals and practice is not uncommon. A
global survey of patterns on project approvals and analy-
sis of 10 case studies concludes that sustainable develop-
ment has not be delivered by the CDM [90].
In many cases, offsets have been shown to produce
additional environmental and social problems. For
instance, Bachram found water table depletion at the
site of early forest plantation pilots in the World Bank
Prototype Carbon Fund, and conflict over land access
between the impacted community and officials [91]. Pilot
offset projects from avoided deforestation and other land
management practices have exacerbated issues surround-
ing land tenure for forest and indigenous communities
in postcolonial states [71,92]. The term “green grabbing”
is now being used to convey that carbon offsets and
other forms of marketized conservation revalue land and
resources in ways that can alienate local populations.
They liken carbon market extension to longer histories
of appropriation for environmentally destructive pur-
poses by colonial and global market actors [93].
Beyond local experiences, the broader problems
lie in the logics of market governance that have been
instituted. A desk study of Project Design Documents
created for CDM forestry offset projects showed that
socio-economic assessments are frequently nonexistent
or lack detail [94]. This puts the potential for sustainable
development into question. The regulatory structure of
the CDM is such that national agencies are responsible
for sustainable development. This makes sustainable
development a separate, secondary process to calculat-
ing carbon reductions, and monetary values are the
jurisdiction of the UNFCCC agencies [95]. Fu rther,
Ervine argues that the market-based structure of CDM
finance makes it a poor tool for addressing develop-
ment and climate change [96]. The market-based ex post
structure of CDM finance means initial project costs are
covered by a combination of debt, equity and grants to a
lesser extent. This creates risks for marginal actors that
may rely on bank loans or microfinance to participate.
She anticipates that with contracting carbon market
finance, CDM-related debt may grow.
Carbon markets as fossil fuel subsidy
Over-compensation for fossil fuel industries has meant
that the profit margins of some of the most polluting

Ten reasons why carbon markets will not bring about radical emissions reduction Research Article
7
firms have increased. While companies with obliga-
tions to participate in the EU ETS have been allocated
more free permits than they need, almost all of the costs
were passed on to consumers [97]. Heavily compensated
energy-intensive industries (iron and steel, refineries and
(petro)-chemical utilities) enjoyed windfall profits of
€14 billion between 2005 and 2008 [98]. Electricity pro-
ducers, too, were free to pass on to consumers the full
“opportunity cost” of compliance by increasing electric-
ity prices, resulting in windfall profits of between €23
and €71 billion in the second phase [99].
Industry lobbying has guaranteed that over 75% of
the manufacturing industry will continue to receive
permits for free at least until 2020 (meaning extra
revenue to polluters instead of state coffers of around
€7 billion per year) [100]. Every attempt to end these
handouts has met strong lobbying from energy-inten-
sive industries [97,101]. In phase III (2013–2020), only
the energy sector will be required to buy permits at
auction, and even then, exceptions have been made
for utilities in Central and Eastern Europe, including
those with a high dependence on coal for electricity
generation.
The New Zealand and Australian ETS has repeated
the pattern of overly generous compensation [67,102–
104]. In New Zealand, compensation is linked to emis-
sions intensity of output, and there are no penalties
for increasing emissions. In Australia, it was estimated
that between $2.3 and $5.4 billion in windfall profits
would go to brown coal generators who are passing
on more than the full costs of the carbon price to
consumers [105]. Analysis of the compensation and
exemptions awarded to black coal, liquefied natural
gas (LNG) and steel industries in the Clean Energy
Future (CEF) is unjustified and costly [106]. Lo and
Spash point out that the excess permits awarded to the
most polluting firms can be traded at a profit, whereas
permits purchased, mainly by less energy-intensive
industries, cannot [102 ]. These significant transfers of
public money to firms illustrate that far from being
cheap, carbon trading has proven to be costly to the
public and consumer purse [64,107,108].
Carbon markets as regressive
There is a risk that carbon markets can have regres-
sive effect. Like taxes on consumption, cap-and-trade
schemes applied to fossil fuels have an effect on both
energy prices and all other goods and services. As a
result, the burden of carbon costs is disproportion-
ately placed on low-income households since they
spend more in real terms on goods impacted by car-
bon pricing, such as electricity, fuel and groceries.
The inequality of carbon pricing is starker when con-
sidering the issue of windfall profits discussed above.
In the EU and Australia, no meaningful price signal
has been sent to firms receiving grandfathered per-
mits, while consumers experience the full cost passed
through [97,10 2].
There is an ongoing discussion about revenue recy-
cling in the economic literature, recommending that
the regressive elements of carbon trading (and other
forms of mitigation policy) can be compensated for
with appropriate social policies, such as house insula-
tion, micro-generation, energy efficiency and public
transport programs [109,110].
In practice, governments have recycled revenues from
carbon pricing in various forms, including: not allocat-
ing revenues to any purpose (UK, Norway, Ireland);
covering administrative costs (Lithuania, Ireland),
energy efficiency programs (Lithuania, Czech Republic);
international climate aid (Germany), renewable energy
subsidies (Germany) [see 111 ]; research and development
and progressive tax reform (Australia). Controversially,
the European electricity producers’ lobby negotiated a
proportion of the revenue from auction permits under
phase III of the EU ETS to go to the development of
what critics see as questionable energy projects. Revenue
from the 300 million auctioned permits was allocated to
carbon capture and storage (“clean coal”) and agrofuels
along with other clean energy projects [61]. In Australia,
critics of the former ETS argue that the federal govern-
ment underestimated the impacts of carbon pricing on
households in the medium and long term. This puts the
adequacy of compensation into question [112]. Volatility
of carbon prices, particularly with Australia's former
plans to link to the EU scheme, would have compro-
mised the capacity of the state to use future revenue to
ease household costs.
Carbon markets as corruption
The EU carbon market has been susceptible to fraud
[100]. In 2010, for example, “carousel fraud” or “missing
trader fraud” in the EU ETS was revealed to have cost
the public purse more than €5 billion in lost Value-
Added Tax (VAT) revenues [113]. There are ongoing liti-
gations of carbon traders accused of fraud, and a CDM
verification agency has been suspended. Fraudulence
has also been documented in certified UN offset pro-
jects and “carbon neutral” credits developed for sale
on the voluntary market [114]. While some responses
from the European Commission have been positive,
others have been worrying. Reyes points out that the
decision to hide the serial numbers of permits will
increase, rather than decrease, the possibility of fraudu-
lent activity [115].
Chan analyzed the US proposed climate legislation
in 2009, concluding that it failed to account for the
complexity of financial markets and that it did not go

Carbon Management (2014)
8
Research Article Pearse and Böhm
far enough to regulate secondary carbon markets [116].
She concluded that the speculative nature of the second-
ary markets has the potential to create a carbon bubble
and spur the development of “subprime carbon.” With
regard to the extension of carbon trading to REDD,
NGOs have argued that the potential for fraud is too
great. Given the significant sums of money involved,
there is incentive and potential for manipulation of car-
bon measurements to exaggerate results and increase
payments [117,118].
Lohmann [119] sees carbon as an unregulatable com-
modity. He contends that corruption is not reducible
to the misdeeds of individual entrepreneurs, but to the
architecture of carbon markets themselves. His point is
that the fundamental idea of establishing baselines (an
estimated past against which the hypothetical future
is measured) makes it impossible to know whether a
project is “additional”; hence, it is impossible to argue
that problems stem from a given activity being “non-
additional” [119].
Carbon markets as utopian faith in pricing
Environmental economics privileges economic rela-
tions over social and ecological life. The discipline has
refigured nature as natural capital. In Polanyi's [120]
terms, we can read carbon markets as the construction
of a “commodity fiction” based on utopian efforts to
separate parts of the carbon cycle out from society, in
order to place it under the direction of the price signal
[47,80,121]. Contrary to the depiction in neoclassical eco-
nomic theory, carbon markets are political constructs,
constituted by the constellation of social forces that
dominate them [122].
Critics observe that carbon pricing in practice does
not match the models contained in economic textbooks.
Spash [49], for example, argues that claims to efficiency
in carbon market schemes cannot be substantiated with
static equilibrium analysis, and that the impact of car-
bon pricing is highly unpredictable [49]. He also argues
that these models ignore the often-considerable concen-
trations of power in any given marketplace, particularly
in the fossil fuel-based energy sector.
In the case of forest carbon offset programs in the
developing world, the incentive approach ignores the
institutional barriers to implementing and enforcing
governance. “Fragile states” are often not in a posi-
tion to make the decision to forgo rents from destruc-
tive industries within the largely unchanged political
economy of global markets for minerals, timber and
palm oil [123]. REDD programs in Papua New Guinea
are testimony to this [124,125]. At a local level, there are
risks that introducing monetary incentives for valuation
of carbon reductions/sequestration will “crowd out”
motivations and behaviors that contribute to broader
conservation outcomes in the short and long term [126;
see also 127,128].
In practice, market efficiency criteria are commonly
at odds with social development objectives [128]. To
genuinely reconcile ecological, social and efficiency
goals would void the economic instrument [95]. These
contradictions, among other social limitations, mean
that there are insurmountable obstacles to building coa-
litions that bridge the interests of business and environ-
mentalists [58].
Carbon markets as scientism
Carbon markets reflect faith in the universal appli-
cability of science. Scientific knowledge is essen-
tial for the process of assigning rights to greenhouse
gas emissions. Commodification requires processes
of commensuration – that is, creating equivalences
between demarcated portions of the carbon cycle
“where qualitatively distinct things are rendered equiv-
alent and saleable through the medium of money”
[129]. MacKenzie [130] has dubbed the socio-technical
processes involved in producing carbon commodities
“making things the same.”
Underlying this logic is a reductive view of nature.
Differences between greenhouse gases are profound in
ecological and social terms. The economic assumption
that the carbon cycle can be measured accurately, quan-
tified and parceled up into property rights is simplistic.
The controversy over measuring the global warming
potential of HFC gases is testimony to the problems
of measurement [130,1 31]. Lohmann [132] argues that
problems stemming from these differences, such as
the impossibility of aggregated quantitative measure-
ments of emissions “removals” by “carbon sinks,” are
not recognized by UNFCCC parties or the IPCC. The
abstraction involved in forming CO2e commodities
means scientific unknowns are frequently suppressed
[121].
There is also a broader problem of assuming like for
like. Numerous critics have pointed out that above- and
below-ground carbon is different, and that proceeding
with attempts to create equivalent, tradable carbon rights
is problematic [57,132,133]. Fossilized carbon that com-
poses energy fuels, such as coal and oil, is produced over
thousands of years, becoming effectively inert. Other
types of carbon have less stable properties. For instance,
carbon that is stored in landscapes is part of the living
carbon cycle where carbon is constantly transferring
between inorganic forms (CO2 in the atmosphere) and
organic forms (plants, algae, animals, etc.), in flux over
decades. Sequestering carbon in terrestrial ecosystems
through conservation projects will not remove it from
the active atmosphere–land–ocean cycle, and these eco-
systems are vulnerable to changes in land use.

Ten reasons why carbon markets will not bring about radical emissions reduction Research Article
9
Carbon markets as technocracy
Carbon markets are constructed by a transnational
network of economic agents (economists, scientists,
engineers, policy advisors, parliamentarians, etc.) and
complex technologies (computers, global positioning
system satellites, factories, gasses, accounting systems,
etc.) [130]. New actors attracted to the trade in carbon are
entering into contracts with communities in the South.
In the process, new values, rights, responsibilities and
liabilities are defined. The commodification of carbon
involves assigning value to emissions in the abstract,
and are derived as a function of marginal abatement
costs [134]. Lohmann observes that carbon market
management has created reams of complicated carbon
accounting data and cost-benefit analyses. These new
managerial systems produce new technocratic elites, yet
also new zones of ignorance by abstracting from where
emissions are made [121,131,135].
In regard to oversight, very limited accountability
and transparency results from the complexity of carbon
market governance [49,135]. The privileging of expert
knowledge creates power imbalances between would-be
market actors. For instance, corporate operators who can
aggregate their activity are best placed to benefit from
participation in new markets such as REDD. In contrast,
local communities who may take a once-in-a-lifetime
decision to participate are taking much greater risks [136].
Again, the theoretical origin of technocratic govern-
ance is neoclassical economics. In normative terms, eco-
nomics has re-geared questions of sustainability away
from being moral and environmental issues to being
technical problems resolvable through economic cal-
culation [36,137,138]. Carbon markets are now associated
with a style of politics that renders “carbon” a problem
to be managed by experts [139].
Carbon markets as obstacle
A new coalition of campaigners has come together to
argue that the EU ETS should be scrapped to make
way for other forms of climate policy [100]. They argue
that carbon pricing has acted as political barrier to other
action – in other words, carbon trading is not a “first
step” toward broader, better reform. Instead, carbon trad-
ing locks in emissions increases and is used as an excuse
to abandon other energy policies that contribute more
meaningfully to the task of decarbonization [65,79]. For
instance, Australia's 2012 Energy white paper was based
on the assumption that emissions will be outsourced over-
seas, while the domestic coal and gas industries can be
expanded. Under the cover of carbon pricing, the report
argued for further energy privatization, and the removal
of measures that support renewable energy sources [14 0].
With the regressive impacts of carbon pricing in
mind, others have argued for carbon taxation with
progressive effects on income distribution such as tax-
ing luxury goods [110 ] or hypothecated carbon income
and corporate taxes to fund energy transition and meet
international obligations [141]. Carbon taxes promise to
be far simpler to administer and implement, and they
would cut out an array of brokers and speculators who
profit from and often manipulate the carbon trading
system [142]. Using Germany's “Energiewende” as exam-
ple, Reyes also predicts that a discontinued EU ETS
would allow for more, “national transition planning”
[65]. It would give citizens and governments the power
and opportunity to implement a wide range of possi-
ble policy options, from energy efficiency measures to
renewable energy targets – most of which are currently
crowded out by governments’ focus on carbon trading.
Finally, calls from environmental justice movements
to keep fossil fuels in the ground imply a return to
direct regulation. State subsidies and other assistance
to polluting industry must be removed and shifted to
renewable energy, and existing laws regulating mining,
agriculture and forestry must be enforced and strength-
ened to meet ecological and social justice criteria [79].
In terms of international action, some now argue for
“cooperative decarbonization” between smaller groups
of nations focused on particular industries or commodi-
ties such as coal [143 –145].
Conclusion
We will soon be marking the 20th anniversary of the
Kyoto Protocol, which instituted the logic for carbon
markets. Yet greenhouse gas emissions are still increas-
ing rapidly. The time for radical action has come, if
humanity wants to stand a chance of avoiding runaway
climate change. The evidence synthesized in this paper
suggests that carbon markets will not play a role in any
plan to radically reduce greenhouse gas emissions.
This overview of the theoretical and empirical rea-
sons for withdrawing from the projects of creating car-
bon markets has sought to demonstrate that we will not
be able to design and implement ecologically effective
and socially just carbon trading schemes. Many peo-
ple engaged in climate policy analysis and debate may
conclude that the problems with carbon trading can be
dealt with by simpler, smaller scale market design with
better regulatory oversight [90,146]. This implies that the
flawed practice of carbon trading is the problem, not the
political and intellectual rationale behind it. There are
major failures of neoclassical economic theory under-
pinning carbon trading, particularly with regard to the
underlying vision of “nature,” and its optimism about
market dynamics and inattention to power relations.
More broadly, the pattern of institutional arrangements
and social forces behind emissions trading shows path
dependency in the wrong direction.

Carbon Management (2014)
10
Research Article Pearse and Böhm
Because carbon trading is built on questionable eco-
nomic theory and has been instituted through particu-
lar patterns of decision making, it is not amendable
to reform. The political economy of carbon trading is
such that organized industry lobbies representing both
industrial and financial sectors have enormous power to
secure schemes that bolster existing emissions-intensive
accumulation processes rather than disrupt them. This
is compounded by an ongoing utopian faith in market
mechanisms and technocratic decision making within
the state and expert elite. We conclude that a return
to direct regulatory measures as the central means for
change is a more fruitful focus for pragmatic state and
expert policymakers.
Now is the time to redirect political energy to
alternative action. We acknowledge that alternative
visions and implementation for just climate policy
reform that meets the task of rapid decarbonization
will certainly require change at a rapid pace. Yet
we believe that the case for pursuing alternatives to
carbon trading is strong. A great deal of novel and
creative work will be enormously difficult, for sure.
In other ways, the shift we are calling for involves
harnessing existing legislative powers to ensure envi-
ronmental and social protection against emissions-
intensive industries.
Progressive tax reform promises to be much more pop-
ular with national populations than regressive carbon
pricing. Alternative forms of international cooperation
focused on transition away from fossil fuel dependence
would have the benefit of being focused on the root causes
of energy imbalance and not on emissions in abstract.
Of course, democratization of government policy pro-
cesses would need to occur, including breaking the hold
of industry lobbies on resource and environmental minis-
tries across the world. One important part of the struggle
to refocus government action to climate stabilization will
be to broker new uncompromising visions for reform.
Actors in expert policy circles have a role to play in argu-
ing for alternate progressive policies, including ideas that
are currently considered “ideological.”
Acknowledgements
We would like to thank three anonymous reviewers and the editorial
team for their productive criticisms and suggestions for improvement.
The usual disclaimer applies.
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