TY - UNPB

T1 - Market Design for the Environment

AU - Cantillon, Estelle

AU - Slechten, Aurelie

PY - 2023/12/31

Y1 - 2023/12/31

N2 - The main argument in favor of markets in environmental contexts is the same as in other contexts: their ability to promote efficient allocations and production. But environmental problems bring their own challenges: their underlying bio-physical processes - and the technologies to monitor them - constrain what is feasible or even desirable. This chapter illustrates the main design dimensions in environmental markets, the trade-offs involved and their impact on performance, through the lens of a regulated market for pollution rights (the EU emissions trading scheme) and a voluntary market for the provision of environmental services (the global market for carbon credits). While both markets eventually contribute to climate change mitigation, their organisation as a "pollution market'', for the former, and as a "provision market'', for second, means that different design considerations take precedence. Both markets also face challenges: volatile prices in the EU emissions trading scheme and low trust for voluntary carbon markets. We discuss how alternative design options could address those.

AB - The main argument in favor of markets in environmental contexts is the same as in other contexts: their ability to promote efficient allocations and production. But environmental problems bring their own challenges: their underlying bio-physical processes - and the technologies to monitor them - constrain what is feasible or even desirable. This chapter illustrates the main design dimensions in environmental markets, the trade-offs involved and their impact on performance, through the lens of a regulated market for pollution rights (the EU emissions trading scheme) and a voluntary market for the provision of environmental services (the global market for carbon credits). While both markets eventually contribute to climate change mitigation, their organisation as a "pollution market'', for the former, and as a "provision market'', for second, means that different design considerations take precedence. Both markets also face challenges: volatile prices in the EU emissions trading scheme and low trust for voluntary carbon markets. We discuss how alternative design options could address those.

M3 - Working paper

BT - Market Design for the Environment

PB - National Bureau of Economic Research

ER -