Effective and flexible emissions trading markets: international emission trading by networking carbon markets on distributed ledger technology architecture – regulatory and institutional frameworks
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Date
25/06/2020Item status
Restricted AccessEmbargo end date
25/06/2021Author
Macinante, Justin Damian
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Abstract
Notwithstanding the apparent lack of success of international emission trading under
the Kyoto Protocol, numerous jurisdictions are implementing mitigation mechanisms
that put a price on carbon, whether by taxing activities that cause release of carbon
to the atmosphere, or by creating markets through which the cost of atmospheric
release of carbon is internalised to the relevant activities by way of emission trading
schemes. Carbon pricing is integral as a tool of global climate policy for achieving
greenhouse gas emission mitigation.
The Paris Agreement and related decisions recognise and embrace the diversity of
approaches taken by jurisdictions, moving away from the previous approach under
the Kyoto Protocol. All the same, these diverse and heterogeneous mechanisms –
in particular emission trading schemes – might achieve greater efficiency, larger
scale and stimulate essential private sector engagement and other benefits, were
they to be connected.
There is a body of academic literature on the subject of linking emissions trading
schemes, but surprisingly few examples. Linking entails jurisdictions achieving a
certain level of convergence and homogeneity, which means parties negotiating out
their differences. An alternative model is networking of emission trading schemes,
which recognises and places a value on those differences, while maintaining the
autonomy of the individual schemes.
This thesis proposes a conceptual model of networking built on a distributed ledger
technology (DLT) platform. DLT is one of a suite of new, so-called disruptive
technologies impacting how services, especially financial services, will be provided
into the future. As the carbon market network model is essentially a supra-jurisdictional
financial market, the impact of these disruptive technologies must be
taken into account. Even more so, DLT introduces features potentially making
networking more feasible and effective within the policy framework of the Paris
Agreement.
New technologies come with their own issues, not least the fact that existing
regulatory regimes may not be able to account for the changes they bring.
Implementation of applications should be managed so that, on the one hand, they
do not simply become means for circumventing current laws, but on the other, are
not regulated in such a manner as to stifle innovation.
In proposing an institutional and regulatory framework to enable the operation of the
conceptual model proposed, this thesis analyses the literature and existing
regulation of DLT applications in the financial markets. In so doing, the analysis
draws together the applicable elements of climate change law, financial regulation
and developing regulation of the technology. It aims to arrive at a position on the
extent to which the proposal can overcome delays, inefficiencies and other
problems that currently beset the carbon market, so as to maximise the
opportunities for emissions trading to make a difference in achieving the objectives
of climate policy.
The thesis contributes to the extant academic literature in a number of respects, for
instance, arguing that it is applications of new distributed ledger technology that
should be the focus of regulation, not the technology itself; and by a novel
application of theory concerning fragmentation of international environmental law
and climate law to illustrate why it is postulated international emissions trading
under the Kyoto Protocol was less effective than hoped. Equally importantly, the
thesis contributes by examining networking as a means for connecting carbon
markets, in contrast to the current linking approach; and by proposing a model for
such networking, then analysing a governance structure for such connected
markets, both areas that have received little previous academic attention. Key
implications for policymakers arising from the thesis include issues such as the need
for an assessment methodology to value diverse mitigation outcomes; and how to
connect heterogeneous carbon pricing mechanisms to enhance mitigation policy.