New SNIS project by a team of network members

Designing Effective Regulation for Carbon Markets at the International, National, and Subnational Level

A team of network members is starting a research project on carbon markets funded by the Swiss Network for International Studies (SNIS) in January 2019.

Project Summary:
Carbon markets are artificial markets which without government regulation would not exist. There is, therefore, a particular need for government regulation to ensure their efficient functioning and prevent abuse. Due to their artificial nature, carbon market creators possess ample information to enable detailed market monitoring. While over 15 carbon markets exist at different jurisdictional levels, little is known about how a regulatory framework could prevent traditional market abuses such as price manipulation and specific issues such as gaming of additionality tests. Given that carbon pricing is central to climate policies and new carbon markets are developing while negotiations on their regulation are ongoing, there exists a window of opportunity for translating research results directly into policy. This project aims to combine insights from economics, quantitative finance, political science, and law to (i) theoretically derive rules and guiding principles for multi‐level carbon market regulatory oversight, (ii) empirically investigate market abuses that have already taken place, (iii) identify gaps in the regulatory and oversight frameworks developed for existing carbon markets, (v) assess how international cooperation can be promoted to implement a regulatory framework, and (v) develop a best‐practice regulatory blueprint for international, national, and subnational carbon markets. These tasks will be achieved through a literature review, interviews, process tracing, document analysis, and legal comparison, as well as quantitative analysis of registry and price data from different markets. We expect to contribute to scientific and practical progress by providing an integrated, multi‐disciplinary approach to carbon market regulation and offering recommendations for ongoing negotiations. The project will be politically significant since abuse has great potential to damage the environmental integrity of carbon markets, leading to significant economic loss and reduced confidence by market players and the public.

Project Team:

Regina Betz and Peter Schwendner (ZHAW), Katharina Michaelowa, Paula Castro, Axel Michaelowa, Rainer Baisch and Rolf Weber (UZH), Andrea Baranzini (HES), Michael Mehling (MIT)

Martina Zahno