Emissions trading and the role of a long-run carbon price signal

Emissions trading is now a well-established tool for reducing greenhouse gas (GHG) emissions in an effort to mitigate the impacts of global climate change. By the end of 2017, Emissions Trading Systems (ETS) will regulate more than seven billion tons of CO2e, with 19 systems operating worldwide. This paper is concerned with market or regulatory imperfections that could disrupt the dynamic cost effectiveness, i.e. achieving reductions at least cost over time, of an ETS and examines options for how these imperfections may be addressed.