Contemporary Issues Confronting International Carbon Markets: Critical Reviews

Abstract

This paper conducts critical reviews of the contemporary issues confronting the emission trading systems as international carbon markets. The reviews focus on Border Carbon adjustment (BCA) or Caborn Adjustment Mechanism (CBAM) Issues, social-political issues, and Legal or environmental jurisdictional overlap issues. Although the implementation of ETS markets is on the rise, there are contemporary issues that remain to be resolved. Carbon leakage and loss of competitiveness are the major reasons advanced for proposing BCAs/CBAMs as carbon leakage and competitive loss mitigation strategies. However, the BCAs/CBAMs have been criticized on several fronts. Firstly, the BCAs are perceived and criticized as covert ‘green’ protectionist measures. Secondly, critics argue that BCAs/CBAMs implementations will violate international trade laws and international climate agreements such as the Paris Agreement. Thirdly, with regards to the environmental jurisdictional authority, the reviews found that the over-centralization of environmental regulation and the lack of streamlining the environmental jurisdictional laws are the drivers of environmental jurisdictional authority disputes in the existing ETS jurisdictions. Fourthly, in terms of socio-political issues, critics argue that the theory underpinning the implementation of the BCAs/CBAMs as a way of combatting carbon leakage and loss of competitiveness is false or dubious because empirical literature on carbon leakage strongly suggests that firms make relocation decisions based on many factors of which environmental regulation is not the major factor. The literature recommends that the ideal approach to global climate change action is a mutual agreement on best practices in implementing BCAs, including climate clubs, that are not only environmentally effective but also more equitable and less disruptive of trade.