Geographic Determinants of Carbon Markets (CDM)

Global warming has emerged as one of the most critical issues of our age, and a key issue in the global economic and environmental debates. In recent years, the global carbon market has become a newly developed area for research and practice. It essentially consists of allowance-based markets and project-based markets which use market-based mechanisms to allocate and trade carbon credits that represent CO2 emission reductions in order for the participants to meet their compliance requirements at the lowest possible cost. In allowance-based markets, the buyers purchase emission allowances created and allocated (or auctioned) by regulators under cap-and-trade regimes like Assigned Amount Units (AAUs) under the Kyoto Protocol, or EU Allowances (EUAs) under the EU Emissions Trading Scheme (EU ETS). Within project-based markets, the buyers purchase emission credits from investing into a project that can demonstrate a reduction of CO2 emissions in comparison to the level of emissions in the absence of the project investment. The most notable examples of such activities are the Clean Development Mechanism (CDM) and the Joint Implementation (JI) schemes under the Kyoto Protocol.