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Creating a club of carbon markets: implications of the trade system

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A. Petsonk
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The interplay of trade rules and the concept of a club of carbon markets (CCM) is crucial suggest the researchers in this paper, because high-integrity carbon markets will be central to the success of emission reduction efforts over the coming decades.

In the context of the emerging decentralized regime complex of climate change, a CCM could be a powerful driver for greater ambition in national climate action.

The briefing suggests that a minilateral approach could draw usefully on experiences in the evolution of international trade, from the formation of the GATT (which itself originated as an informal “club” of 23 countries in the absence of multilateral agreement) to the more recent emergence of regional and plurilateral trade agreements.

One potential obstacle to the formation of a CCM is lack of clarity on how it would interact with the trade regime. Uncertainty about whether WTO rules might apply to trade in carbon emission units, a core feature of carbon market clubs, could cast a shadow over the club approach. Climate policymakers who are not typically trade experts might well be reluctant to take what they perceive as a risk of violating the trade system. 

This paper seeks to dispel such uncertainty. Researchers see no evidence of a conflict between WTO rules and a decision by members of a CCM to exclude emission units from nonmembers. As a threshold question, emission units do not appear to be goods or services, so they conclude WTO disciplines should not apply.