Mitigation of climate change: carbon markets and technology

Page Contents >

More information
Lead staff
Other contributors

This research programme looks at the use of market-based approaches to climate change mitigation and the promotion of low-carbon innovation.

More information

Halting human-induced climate change will require a sharp and very large reduction in the greenhouse gas emissions associated with economic activity. Current projections suggest that there needs to be at least a 50 per cent drop in global annual emissions by 2050, followed by further falls, to limit the rise in global mean temperature, from pre-industrial times, to 2°C.

How can this be achieved?
Can it be achieved without severe adverse effects on economic growth?
What policies should public authorities put in place to provide the appropriate incentives?

The EU has adopted a market-based approach – a so-called 'cap-and-trade' scheme – to help bring down greenhouse gas emissions, and such schemes are being discussed elsewhere too. Trading in 'permits to pollute' is widely recognised as a way of encouraging emissions to be reduced cheaply because it permits flexibility in where, when and how firms make their cuts. Appropriately designed schemes can also generate funds for emissions reductions in developing countries.

Our research draws on insights from financial economics about market structure and imperfections to examine how to make emissions trading more effective and efficient, including for participating firms. It also considers how carbon accounting, benchmarking and disclosure can be improved.

Market-based approaches to decoupling greenhouse gas emissions from economic growth provide a price signal to encourage the development and deployment of new, lower-carbon technologies.

We ask:

How do price signals and other elements of climate change policy affect the carbon and energy intensity of firms?
What are the consequences for innovation, technology transfer, productivity, competitiveness and employment?

One unique aspect of the programme is its use of detailed firm-level information, such as special surveys and unpublished official data, and records of patenting activity. Quantitative analysis will contribute towards a broader consideration of how policy frameworks, institutional contexts, production and consumption interact; as will the programme's element focusing on legal aspects of the global policy framework, such as intellectual property rights.

We are exploring how public and private policy initiatives might reinforce each other and bring economies on to emissions reduction paths consistent with halting human-induced climate change. That will require, for example, a substantial increase in, and redirection of, innovatory activities. This analytical framework can be used to help assess the efficacy of particular policy proposals, such as those in the UK Climate Change Act, and the challenges facing countries with very different energy systems and industry structures.