Carbon Trading: Solution or Chimera

12 Pages Posted: 5 Jul 2007

See all articles by Les Coleman

Les Coleman

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Date Written: July 3, 2007


This article responds to growing interest in carbon emissions trading to reduce the concentration of greenhouse gases in the atmosphere. It identifies the objectives and performance criteria of a price mechanism to regulate global emissions, and then compares the two most commonly proposed solutions, which are a carbon tax and emissions trading. The analysis concludes the more efficient policy is to set emission limits for each country, and then extend existing excise systems to impose a tax on carbon consumption that achieves the emissions target. An international trading scheme is simply too complex, too expensive because of the new infrastructure required to handle emission permits, and too risky because of inevitable weaknesses in emissions markets.

Keywords: Carbon trading, climate change

JEL Classification: D45, H23, Q25

Suggested Citation

Coleman, Les, Carbon Trading: Solution or Chimera (July 3, 2007). Available at SSRN: or

Les Coleman (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business & Economics
Parkville, Victoria 3010 3010

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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