When global leaders signed the Paris Agreement in 2015, pledging to limit global warming beneath 2 degrees C, it was widely expected that carbon markets would play a key role in meeting this target. But creating the kind of systems that promote credible carbon markets has proven difficult.
In advance of the latest UN climate conference (COP30), held last month in Belém, Brazil, the COP president recruited some of the world's leading economists - including Yale's Rohini Pande - to an economics advisory council to propose improved global systems to manage carbon emissions and adaptation mechanisms globally.
Pande, the Henry J. Heinz II Professor of Economics at Yale and director of the Economic Growth Center, chaired a group which was asked specifically to recommend a path toward a new, unified system for global carbon markets. A report they published helped inform the new "Open Coalition on Compliance Carbon Markets," a voluntary initiative adopted during the climate conference that leaders say will promote greater cooperation on regulated carbon markets worldwide.
In a Q&A, Pande explains how carbon markets work, why it has been challenging to create voluntary carbon markets, and how the establishment of a unified, credible global market can help make emissions reduction cost effective and promote low-carbon innovation in the world's developing nations.
The conversation has been edited for length and clarity.
Professor Pande, you were part of a group of leading economists asked to evaluate and propose systems or mechanisms that might promote carbon markets that are more unified and credible. What did you find?
Rohini Pande: Well, I first want to credit two people who were instrumental in seeing that economists were more systematically brought into the process during this year's COP. The first was Ambassador Corrêa do Lago, whom Brazil appointed as the lead negotiator. He had the great insight that the COP process historically has had a lot of negotiators, a lot of think-tanks, and a lot of policymakers, but no systematic way of getting inputs from both scientists and economists. So, he set up two committees, a committee of scientists and a committee of economists. And there was also José Scheinkman [a professor of economics at Columbia], who was chair of the committee of economists and who in turn decided to set up a series of subcommittees.
An important question we addressed was how we can design carbon markets that both reduce emissions and unlock the financing that emerging and developing economies need to invest in large scale decarbonization. We need a system that's fair and respects each country's capacity and responsibility. At the same time, it needs to be credible so that rich countries can trust the market to deliver cost effective emission reduction investments in emerging and developing economies that are often marked by low state capacity.
