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Will International Carbon Trading Become Obsolete?

New Study Assesses Conditions for International Transfers of Mitigation Outcomes in 2050

November 2016 – A new Policy Paper addresses this question. Economic theory suggests that carbon trading will eventually become obsolete, at the latest, when all emissions are reduced and the world economy relies entirely on climate friendly technologies. In the Paris Agreement the States of the world have agreed to approach the required transformation of their economic and social systems. Assuming the decarbonisation of the world economy has been initiated successfully, the question arises whether there is actually room left for international carbon trading in 2050. Will there be enough unleveraged mitigation potential? Will differentials in the abatement cost levels prevail across the globe? If these two conditions are violated, there will be no physical and/or economic space for international transfer of mitigation outcomes as foreseen by the Paris Agreement’s Article 6.

To assess this question, the Policy Paper analyses a series of very ambitious mitigation scenarios and complements this analysis with a review of several sectoral technology roadmaps. The results are quite clear: there is no reason to believe that international carbon trading will become obsolete any time soon. Whether or not international carbon trading is to play a role in international climate protection efforts is in the end not a physical or economic question, but a political one.