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Lessons from Regulating Carbon Offset Markets

Published online by Cambridge University Press:  02 December 2014

Christopher Arup  and
Hao Zhang
Christopher Arup
Affiliation:
Monash Business School, Department of Business Law, Monash University, Melbourne (Australia). Email: christopher.arup@monash.edu
Hao Zhang
Affiliation:
Monash Business School, Department of Business Law, Monash University, Melbourne (Australia). Email: hao.y.zhang@monash.edu
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Abstract

To support carbon markets, regulators must engage in a continuous process of learning. This article explores offsets regulation in the compliance markets of Europe, the United States and China, alongside the Clean Development Mechanism, to identify what has been learnt since offsets were initiated. We argue that offsets regulation must learn to work with demands for commercial viability, environmental sustainability and political legitimacy. We find that the learning here recommends greater control of the shares, sectors, sources and standards of offsets than was initially chosen. The findings provide some cautious optimism about the scope for improvements to such market mechanisms.

Keywords

Market RegulationOffset MarketsRegulatory LearningCommercial ViabilityEnvironmental SustainabilityPolitical Legitimacy
Type
Articles
Information
Transnational Environmental Law , Volume 4 , Issue 1 , April 2015 , pp. 69 - 100
Copyright
© Cambridge University Press 2014 

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Footnotes

This research forms part of a project funded by Australian Research Council Discovery Grant DP120101485. Thanks to our project colleagues, George Gilligan and Paul Latimer, and to all those who have hosted our research, particularly Francesco Sindico at the Strathclyde Centre for Environmental Law and Governance (United Kingdom) and Peter Arnt Nielsen at the Copenhagen Business School (Denmark). Thanks also to the anonymous referees for their very thorough comments.

References

1 Directive 2003/87/EC of 13 October 2003 establishing a Scheme for Greenhouse Gas Emission Allowance Trading within the Community and amending Council Directive 96/61/EC [2003] OJ L275; National Development and Reform Commission Notice on Initiating Pilot Emissions Trading Programs (People’s Republic of China) National Development and Reform Commission, Order No. [2011] 2601, 29 Oct. 2011; Global Warming Solutions Act of 2006 (State of California); Regional Greenhouse Gas Initiative, Overview of RGGI CO2 Budget Trading Program, available at: http://www.rggi.org/docs/program_summary_10_07.pdf; COP Decision 17/CP.7 Modalities and Procedures for a Clean Development Mechanism, as defined in Article 12 of the Kyoto Protocol, UN Doc FCCC/CP/2001/13/Add.2, 21 Jan. 2002, available at: http://unfccc.int/resource/docs/cop7/13a02.pdf.

2 For instance, Scott, C., ‘Reflexive Governance, Regulation and Meta-Regulation: Control or Learning?’, in O. de Schutter & J. Lenoble (eds), Reflexive Governance: Redefining the Public Interest in a Pluralistic World (Hart, 2010), pp. 43–63Google Scholar, at 63. See further McDonald, J. & Styles, M., ‘Legal Strategies for Adaptive Management under Climate Change’ (2014) 26(1) Journal of Environmental Law, pp. 25–53CrossRefGoogle Scholar; Sabel, C. & Zeitlin, J., ‘Experimentalism in the EU: Common Ground and Persistent Differences’ (2012) 6(3) Regulation & Governance, pp. 410–426CrossRefGoogle Scholar; and Holley, C., Gunningham, N. & Shearing, C., The New Environmental Governance (Earthscan, 2012)Google Scholar.

3 According to Scott (ibid., at pp. 47 and 57), learning applies to both interactive goal formulation and interactive implementation.

4 See further P. Bosch, H. Jorgens & K. Tewa, ‘The Global Diffusion of Regulatory Instruments: The Making of a New International Environmental Regime’ (2005) 598 Annals of the American Academy of Political and Social Science, pp. 146–67.

5 Gilad, S., ‘It Runs in the Family: Meta-Regulation and Its Siblings’ (2010) 4(4) Regulation & Governance, pp. 485–506CrossRefGoogle Scholar.

6 By bad credits we mean doubtful reductions in emissions, reductions that come too cheaply, or reductions with negative side effects.

7 This point is stressed in each of the frameworks cited above: see Scott, n. 2 above, at p. 50; McDonald & Styles, n. 2 above, at p. 27; Sabel & Zeitlin, n. 2 above, at p. 412, and Holley, Gunningham & Shearing, n. 2 above, Ch. 5.

8 These scholars emphasized the role of ‘learning by doing’, picking up on the application of this concept to the EU ETS by the Court of Justice of the European Union (CJEU) in the 2008 Arcelor case (Case C-127/07, Société Arcelor Atlantique et Lorraine and Others v. Premier Ministre, Ministre de l’Écologie et du Développement Durable and Ministre de l’Économie, des Finances et de l’Industrie [2008] ECR I-9895 (Arcelor): Peeters, M. & Weishaar, S., ‘Exploring Uncertainties in the EU ETS: “Learning by Doing” Continues Beyond 2012’ (2009) 3(1) Carbon and Climate Law Review, pp. 88–101CrossRefGoogle Scholar.

9 They are similar to the three reasons why, according to Peeters and Weishaar (ibid., at pp. 88–101), the period of learning was not at an end: (a) design complexity and lack of a priori information, (b) fluctuations in economic conditions, and (c) political and legal contingencies.

10 Generally, see Black, J., ‘Constructing and Contesting Legitimacy and Accountability in Polycentric Regulatory Regimes’ (2008) 2(1) Regulation & Governance, pp. 137–164CrossRefGoogle Scholar. For application to offsets regulation, see Paterson, M., ‘Legitimation and Accumulation in Climate Change Governance’ (2010) 15(3) New Political Economy, pp. 345–368CrossRefGoogle Scholar.

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15 We do not go as far as others to say that the demarcation between regulator and regulated, or principal and agent, breaks down: see Scott, n. 2 above, at p. 47; Sabel and Zeitlin, n. 2 above, at p. 411.

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17 Brousseau and Glachant call this reflexive market regulation, meaning the state regulation of markets: E. Brousseau & J. Glachant, ‘“Reflexive” Market Regulation: Cognitive Cooperation in Competitive Information Fora’, in de Schutter & Lenoble, n. 2 above, pp. 23–41, at 33.

18 For application to carbon markets, see Lederer, M., ‘Market Making via Regulation: The Role of the State in Carbon Markets’ (2012) 6(4) Regulation & Governance, pp. 524–544CrossRefGoogle Scholar, at 526; Bogojević, S., Emissions Trading Schemes: Markets, States and Law (Hart, 2013)Google Scholar, at p. 174. Note that here we do not cover the regulation of the conduct of the trading in the primary, secondary or derivatives carbon markets.

19 Brousseau & Glachant, n. 17 above, at p. 32.

20 We appreciate that these are not the only public bodies involved in regulation, but we shall treat the others, such as the legislatures, as forming part of the context for the learning of the executive agencies, in particular about political legitimacy.

21 McDonald & Styles (n. 2 above, at p. 29) say that learning takes three basic approaches: trial and error, passive adaptation, and active adaptation or structured learning. Similarly, within Holley, Gunningham & Shearing (n. 2 above, at p. 102), a contrast is made between passive, process-based and systemic learning.

22 See the case studies below about the CDM, the EU ETS, the Californian cap-and-trade scheme, the RGGI, and China’s emissions trading pilot programmes.

23 See, e.g., Californian Air Resources Board, ‘Final Environmental Analysis for the First Update to the Climate Change Scoping Plan’, 15 May 2014, available at: http://www.arb.ca.gov/cc/scopingplan/2013_update/appendix_f_final_ea.pdf.

24 See Section 3 below on the offset regulations in the EU ETS. For example, Regulation (EC) No. 1123/2013 on Determining International Credit Entitlements, n. 77 below.

25 Peeters & Weishaar, n. 8 above.

26 Holley, Gunningham & Shearing, n. 2 above, at p. 5.

27 Peeters, M., ‘The EU ETS and the Role of the Courts: Emerging Contours in the Case of Arcelor’ (2011) 2(1) Climate Law, pp. 19–36Google Scholar.

28 See, e.g., Carbon Market News, ‘Chinese Firms Turn to Courts in CER Rows with European Buyers’, Point Carbon, 11 Apr. 2014, available at: http://www.rightsandresources.org/news/reuters-chinese-firms-turn-to-courts-in-cer-rows-with-european-buyers.

29 See Goers, S. & Pfluglmayer, B., ‘Post-Kyoto Global Emissions Trading: Perspectives for Linking National Emissions Trading Schemes with the EU ETS in a Bottom-Up Approach’ (2012) 3(1) Low Carbon Economy, pp. 69–79CrossRefGoogle Scholar; Peel, J., Godden, L. & Keenan, R., ‘Climate Change Law in an Era of Multi-Level Governance’ (2012) 1(2) Transnational Environmental Law, pp. 245–280CrossRefGoogle Scholar.

30 E.M. Bailey et al., ‘Issue Analysis: Linkage with Quebec in California’s Greenhouse Gas Emissions Cap-and-Trade Market’, 20 Sept. 2012, available at: http://www.arb.ca.gov/cc/capandtrade/emissionsmarketassessment/linkage.pdf.

31 Partnership for Market Readiness, ‘About the PMR’, 2013, available at: http//www.thepmr.org/conent/about-pmr. See further Bosch, Jorgens & Tewa, n. 4 above.

32 Kyoto Protocol to the United Nations Framework Convention on Climate Change (Kyoto Protocol), Kyoto (Japan), 11 Dec. 1997, in force 16 Feb. 2005, available at: http://unfccc.int/kyoto_protocol/items/2830.php.

33 New York, NY (US), 9 May 1992, in force 21 Mar. 1994, available at: http://unfccc.int.

34 Decision 17/CP.7 Modalities and Procedures for a Clean Development Mechanism, as defined in Article 12 of the Kyoto Protocol, UN Doc FCCC/CP/2001/13/Add.2, 21 Jan. 2002, available at: http://unfccc.int/resource/docs/cop7/13a02.pdf.

35 Kyoto Protocol, n. 32 above, Arts 6, 12 and 17.

36 Further information is available at: https://cdm.unfccc.int/Projects/pac/pac_ar.html.

37 P. Stiansen, ‘Executive Board of the Clean Development Mechanism Progress Update’, Question and Answer Session presented at the UNFCCC COP19, Warsaw (Poland), 12 Nov. 2013, available at: http://unfccc4.meta-fusion.com/kongresse/cop19/pdf/131112_1315_pr2_CDM_EB_QandA_Warsaw_rev2.pdf.

38 N. Chestney, ‘U.N. Carbon Price Forecasts to 2020 Cut Further: Reuters Poll’, Reuters News, 2 Oct. 2012, available at: http://www.reuters.com/article/2012/10/02/us-carbon-poll-idUSBRE89109V20121002.

39 W. Straw & R. Platt, Up in Smoke: How the EU’s Faltering Climate Policy is Undermining the City of London (Institute for Public Policy Research, Nov. 2013).

40 See the analysis below of the cap-and-trade schemes. Overall, see the table in Goers & Pfluglmayer, n. 29 above, at p. 77.

41 Glicksman, R. & Kaime, T., ‘A Comparative Analysis of Accountability Mechanisms for Ecosystem Services Markets in the United States and the European Union’ (2013) 2(2) Transnational Environmental Law, pp. 259–283CrossRefGoogle Scholar.

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43 Erickson, P., Lazarusa, M. & Spalding-Fecher, R., ‘Net Climate Change Mitigation of the Clean Development Mechanism’ (2014) 72 Energy Policy, pp. 146–154CrossRefGoogle Scholar.

44 UNFCCC (Kyoto Protocol), COP 18, Summary Report of the Ministerial Dialogue about the Role of Market Mechanisms under UNFCCC, Doha, 4 Dec. 2012, available at: http://cdmpolicydialogue.org.

45 M. Gillenwater & S. Seres, ‘The CDM: A Review of the First International Offset Program’ (2011) (3–4) Greenhouse Gas Measurement and Management, pp. 179–203.

46 Michaelowa, A., ‘Interpreting the Additionality of CDM Projects: Changes in Additionality Definitions and Regulatory Practices over Time’, in D. Freestone & C. Streck (eds), Legal Aspects of Carbon Trading: Kyoto Protocol, Copenhagen and Beyond (Oxford University Press, 2009), pp. 248–271Google Scholar.

47 Carbon Market Watch, ‘Summary of the 70th CDM Executive Board Meeting’, available at: http://carbonmarketwatch.org/wp-content/uploads/2013/03/Summary70thEBmeeting_CarbonMarketWatch.pdf.

48 Annual Report of the Executive Board of the Clean Development Mechanism to the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol, UN Doc FCCC/KP/CMP/2013/5 (Part I), 24 Oct. 2013, at p. 13, available at: http://unfccc.int/resource/docs/2013/cmp9/eng/05p01.pdf.

49 M. Krey & H. Santen, ‘Trying to Catch Up with the Executive Board: Regulatory Decision-Making and Its Impact on CDM Performance’, in Freestone & Streck, n. 46 above, at pp. 231–47; Ekardt, F. & Exner, A., ‘The Clean Development Mechanism as a Governance Problem’ (2012) 5(4) Carbon and Climate Law Review, pp. 396–407Google Scholar.

50 I. Shishlov & V. Bellassen, ‘10 Lessons from 10 Years of the CDM’, CDC Climat Research, CDC Report No. 37, Oct. 2012, available at: http://www.cdcclimat.com/IMG/pdf/12-10-05_climate_report_37_-_10_lessons_from_10_years_of_cdm.pdf.

51 For example, Wilson, K., ‘Access to Justice for the Victims of the International Carbon Offset Industry’ (2011) 38(4) Ecology Law Quarterly, pp. 967–1031Google Scholar.

52 See Thomas, S., Dargusch, P. & Griffith, A., ‘The Drivers and Outcomes of the Clean Development Mechanism in China’ (2011) 21 Environmental Policy and Governance, pp. 223–239CrossRefGoogle Scholar on the impact of hydro-electricity dam projects.

53 CDM, ‘Climate Change, Carbon Markets and the CDM: A Call to Action’, Report of the High Level Panel on the CDM Policy Dialogue, Bangkok (Thailand), 2012. The full set of recommendations is set out at pp. 5–8 of the Report.

54 UNFCCC, COP Decision 1/CMP.8, Amendment to the Kyoto Protocol pursuant to its Article 3, Paragraph 9, UN Doc FCCC/KP/CMP/2012/13/Add.1, 28 Feb. 2013.

55 Further information is available at: http://www.cdmpolicydialogue.org/research.

56 For example, CDM, CDM Methodology Booklet (UNFCCC, 2013), ss 3 and 4.

57 Cloatre & Wright, n. 16 above, at p. 84; Lovell, H. & Liverman, D., ‘Understanding Carbon Technologies’ (2010) 15(2) New Political Economy, pp. 255–273CrossRefGoogle Scholar, at 264.

58 CDM, ‘Executive Board Meeting Report’, CDM-EB78, 31 Mar. to 4 Apr. 2014.

59 See CDM, ‘Research Area: Governance’, CDM Policy Dialogue Research Programme, Final Edited Report, 1 Oct. 2012. For example, the proposal to establish a review procedure has been postponed.

60 Directive 2004/101/EC amending Directive 2003/87/EC establishing a Scheme for Greenhouse Gas Emission Allowance Trading within the Community, in respect of the Kyoto Protocol’s Project Mechanisms [2004] OJ L 338/18.

61 The principle of supplementarity is one of the main principles of the Kyoto Protocol (n. 32 above, Arts 6, 12 and 17). The concept is that internal abatement of emissions should take priority over external participation in flexible mechanisms.

62 Communication from the Commission to the Council and the European Parliament, Assessment of National Allocation Plans for the Allocation of Greenhouse Gas Emission Allowances in the Second Period of the EU Emissions Trading Scheme accompanying Commission Decisions of 29 November 2006 on the national allocation plans of Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden and the United Kingdom in accordance with Directive 2003/87/EC, COM (2006) 725 final, 29 Nov. 2006, at para. 1.

63 M. Pohlmann, ‘The European Union Emissions Scheme’, in Freestone and Streck, n. 46 above, pp. 337–66, especially the table at p. 355.

64 Communication, n. 62 above, at para. 2.3

65 Ellerman, A., Convery, F. & de Perthuis, C., Pricing Carbon: The European Union Emissions Trading Scheme (Cambridge University Press, 2010)CrossRefGoogle Scholar, at p. 58.

66 Further information is available at: http://www.carbonretirement.com/content/eu-ets-phase-iii-new-rules-game.

67 Ellerman, Convery & de Perthuis, n. 65 above, at p. 272.

68 Bogojević, S., ‘EU Climate Change Litigation, the Role of the European Courts, and the Importance of Legal Culture’ (2013) 35(3) Law & Policy, pp. 184–207CrossRefGoogle Scholar, at 194.

69 N. 8 above.

70 Peeters, n. 27 above, at p. 35.

71 European Commission, DG Climate Action, ‘Continued Incentives for Use of Project-based International Credits in the EU ETS’, 29 Jul. 2014, available at: http://ec.europa.eu/clima/policies/ets/linking/index_en.htm.

72 Sandbag Climate Foundation, ‘Help or Hindrance? Offsetting in the EU ETS’, Nov. 2012, at p. 6, available at: http://www.sandbag.org.uk/site_media/pdfs/reports/Help_or_Hindrance_Offsetting_2012_3.pdf.

73 European Commission, ‘The State of the European Carbon Market in 2012’, Report from the Commission to the European Parliament and the Council, 14 Nov. 2012, COM(2012) 652 final, at para. 4.

74 Decision No. 1359/2013/EU amending Directive 2003/87/EC Clarifying Provisions on the Timing of Auctions of Greenhouse Gas Allowances [2013] OJ L 343/1.

75 Further information is available at: http://ec.europa.eu/clima/policies/ets/reform/index_en.htm.

76 Directive 2009/29/EC amending Directive 2003/87/EC so as to Improve and Extend the Greenhouse Gas Emission Allowance Trading Scheme of the Community [2009] OJ L 140/63.

77 Regulation (EC) No. 1123/2013 on Determining International Credit Entitlements pursuant to Directive 2003/87/EC of the European Parliament and of the Council [2013] OJ L 299/32.

78 Commission Regulation (EU) No. 389/2013 establishing a Union Registry pursuant to Directive 2003/87/EC, Decisions No. 280/2004/EC and No. 406/2009/EC and repealing Regulations (EC) No. 920/2010 and No. 1193/2011 [2013] OJ L 122/1.

79 See S. Seppänen et al., Demand in a Fragmented Global Carbon Market: Outlook and Policy Options (Nordon, 2013), at p. 26.

80 European Commission, Decision Determining, pursuant to Directive 2003/87/EC, a List of Sectors and Subsectors which are Deemed to be Exposed to a Significant Risk of Carbon Leakage, C(2009)10251 final, 24 Dec. 2009.

81 See, e.g., Tienhaara, K., ‘The Potential Perils of Forest Carbon Contracts for Developing Countries: Cases from Africa’ (2012) 39(2) Journal of Peasant Studies, pp. 551–572CrossRefGoogle Scholar.

82 See S. Böhm & S. Dabhi (eds), Upsetting the Offset: The Political Economy of Carbon Markets (MayFlyBooks, 2009). See also Fairhead, J., Leach, M. & Scoones, I., ‘Green Grabbing: A New Appropriation of Nature?’ (2012) 39(2) Journal of Peasant Studies, pp. 237–261CrossRefGoogle Scholar, and other articles in the same symposium issue.

83 N. Klein, ‘Green Groups May Be More Damaging than Climate Change Deniers’, interview with Jason Mark, Earth Science Journal, 5 Sept. 2013, available at: http://www.earthisland.org/journal/index.php/eij/article/naomi_klein. See now N. Klein, This Changes Everything: Capitalism v The Climate (Allen Lane, 2014), Ch 6.

84 European Commission, Communication on Addressing the Challenges of Deforestation and Forest Degradation to Tackle Climate Change and Biodiversity Loss, COM(2008)645 final, 17 Oct. 2008. See Overdevest, C. & Zeitlin, J., ‘Assembling an Experimentalist Regime: Transnational Governance Interactions in the Forest Sector’ (2014) 8(1) Regulation & Governance, pp. 22–48CrossRefGoogle Scholar.

85 Further information is available at: http://www.un-redd.org.

86 European Commission, Decision No. 406/2009/EC on the Effort of Member States to Reduce their Greenhouse Gas Emissions to meet the Community’s Greenhouse Gas Emission Reductions Commitments to 2020 [2009] OJ L 140/136.

87 See Section 4 below, regarding the Californian scheme. For the solid work done in Australia, see Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth). See further French, E., ‘“Greenbacks” versus Green Credits: Has the Carbon Farming Initiative Got the Balance Right?’ (2013) 30(5) Environmental and Planning Law Journal, pp. 434–451Google Scholar. However, with the change in national government, Australia’s potential as a buyer or seller of offsets, domestic or international, is uncertain at the moment.

88 Sandbag Climate Foundation, ‘Industrial Gas Big Spenders: HFC and N20 Adipic Credit Usage in 2010’, 2011, available at http://www.sandbag.org.uk/site_media/pdfs/reports/Sandbag_2011-05_HFC-N20_2010.pdf.

89 Gillenwater & Seres, n. 45 above, at p. 198.

90 Sandbag Climate Foundation, n. 72 above, pp. 26–30.

91 Gillenwater & Seres, n. 45 above, at p. 198.

92 See, e.g., D. Carrington, ‘EU Plans to Clamp Down on Carbon Trading Scam’, The Guardian, 26 Oct. 2010, available at: http://www.theguardian.com/environment/2010/oct/26/eu-ban-carbon-permits.

93 See CDM projects by type and host region: UNEP DTU Partnership, Centre on Energy, Climate and Sustainable Development, ‘CDM/JI Pipeline Analysis and Database’, 1 Sept. 2014, available at: http://www.cdmpipeline.org.

94 L. Hermwille, R. Elsworth & H. Fechtner, ‘Benefitting from Carbon Markets? German Participation in CDM and JI during the First Kyoto Commitment Period’, JIKO Policy Paper 04/2013, 2013, available at: http://www.jiko-bmub.de/english/background_information/publications/doc/1349.php.

95 Regulation (EU) No. 550/2011 on Determining, pursuant to Directive 2003/87/EC, Certain Restrictions Applicable to the Use of International Credits from Projects Involving Industrial Gases [2011] OJ L 149/1.

96 UNEP-DTU Centre on Energy, Climate and Sustainable Development, n. 93 above.

97 Directive 2009/29/EC, n. 76 above, Art. 13(9).

98 European Commission, Staff Working Document, ‘Information Provided on the Functioning of the EU Emissions Trading System, the Volumes of Greenhouse Gas Emission Allowances Auctioned and Freely Allocated and the Impact on the Surplus of Allowances in the period up to 2020’, SWD(2012)234 final, 25 Jul. 2012.

99 Regulation (EU) No. 1123/2013 on Determining International Credit Entitlements pursuant to Directive 2003/87/EC [2013] OJ L 299/32.

100 Ecorys, ‘Design Options for Sectoral Carbon Market Mechanisms and their Implications for the EU ETS’, Final Report, CLIMAS.B.3/SER/2011/0029, 31 Aug. 2009.

101 Offset investors and compliance buyers say these regulatory options create uncertainty: see Derwent, H., What’s Wrong with Emissions Trading (International Emissions Trading Association (IETA), 2010)Google Scholar.

102 Directive 2009/29/EC, n. 76 above, Art. 1(13). Further information is available at: http://ec.europa.eu/clima/policies/ets/linking/faq_en.htm.

103 Ibid.

104 S.E. Lütken, ‘Indexing CDM Distribution: Levelling the Playing Field’, CD4CDM Working Paper Series, Working Paper No. 10, May 2011, available at: http://orbit.dtu.dk/fedora/objects/orbit:85995/datastreams/file_5571867/content. Though the report still argues they have been useful to these countries.

105 Pearse, R., ‘Back to Land? Legitimation, Carbon Offsets and Australia’s Emissions Trading Scheme’ (2013) 25(1) Global Change, Peace and Security, pp. 43–60CrossRefGoogle Scholar.

106 The Global Climate Change Alliance (GCCA) is an initiative of the European Union, launched in 2007 and coordinated by the European Commission, aimed at strengthening dialogue and cooperation on climate change with developing countries most vulnerable to climate change and supporting their efforts to develop and implement adaptation and mitigation responses. It focuses on the least developed countries (LDCs) and the small island developing states (SIDS). Further information is available at: http://www.gcca.eu.

107 Directive 2004/101/EC, n. 60 above, Preamble.

108 Interview with European Commission, Directorate-General for Climate Action, Brussels (Belgium), Oct. 2013.

109 But cf. Ellerman, Convery & de Perthuis, n. 65 above, Ch. 7.

110 Directive 2009/29/EC, n. 76 above, Art. 1(13).

111 Further information is available at: http://ec.europa.eu/clima/policies/ets/linking/faq_en.htm.

112 Ibid.

113 Carbon Market News, ‘“Zombie” CO2 projects on the Rise as CDM Hits 7,000’, Point Carbon, 9 Jul. 2013, available at: http://www.trust.org/item/20130710094230-sjwk5.

114 Air Resources Board, ‘Overview of Californian Emissions Trading Program‘, 20 Oct. 2011, available at: http://www.arb.ca.gov/newsrel/2011/cap_trade_overview.pdf.

115 Knox-Hayes, J., ‘Negotiating Climate Change Legislation: Policy Path Dependence and Coalition Stabilization’ (2012) 6(4) Regulation & Governance, pp. 545–567CrossRefGoogle Scholar.

116 Global Warming Solutions Act of 2006 (State of California).

117 WCI, ‘Design Summary: Design for the WCI Regional Program’, 27 Jul. 2010, available at: http://www.westernclimateinitiative.org/component/remository/general/program-design/Design-Summary.

118 Further information about the American Carbon Registry is available at: http://americancarbonregistry.org. For further information about California’s cap-and-trade programme and the Reserve’s role in it, see Climate Action Reserve, ‘California Compliance Offset Program’, available at: http://www.climateactionreserve.org/how/california-compliance-projects.

119 Agreement between the California Air Resources Board and the Gouvernement du Québec Concerning the Harmonization and Integration of Cap-and-Trade Programs for Reducing Greenhouse Gas Emissions, available at: http://www.arb.ca.gov/cc/capandtrade/linkage/ca_quebec_linking_agreement_english.pdf.

120 G. Gonzalez, ‘Can Oregon and Washington Price Carbon Pollution?’, 17 Apr. 2014, available at: http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=10303.

121 J. Greenwald, ‘RGGI Changes Help Both the Business and Environment’, Center for Climate and Energy Solutions, 20 Feb. 2013, available at: http://www.c2es.org/blog/greenwaldj/rggi-changes-help-both-environment-business.

122 The now defunct US-Australian Dialogue on Carbon Pricing, available at: http://policyinstitute.ucdavis.edu/informing-policy-3/dialogues-and-conferences/us-australia-dialogue-on-carbon-pricing.

123 Global Warming Solutions Act of 2006, §95910.

124 Air Resources Board, ‘Cap-and-Trade Auction Proceeds Investment Plan: Fiscal Years 2013–14 through 2015–16’, 14 May 2013, available at: http://www.arb.ca.gov/cc/capandtrade/auctionproceeds/final_investment_plan.pdf.

125 Global Warming Solutions Act of 2006, §95854.

126 Global Warming Solutions Act of 2006, §95973. For the protocols, see Air Resources Board, ‘Compliance Offset Program’, 10 Sept. 2014, available at: http://www.arb.ca.gov/cc/capandtrade/offsets/offsets.htm.

127 Carbon Market News, ‘California Issues First Forestry Offsets for Carbon Market’, Point Carbon, 9 Apr. 2014, available at: http://www.reuters.com/article/2014/04/09/california-carbonoffset-idUSL2N0N12GR20140409. At the same time, however, the Board is having to check the validity of some credits it has already accepted: see Carbon Market News, ‘California Investigating Validity of 4.3 Million Carbon Offset Credits’, Point Carbon, 5 Jun. 2014, available at: http://www.reuters.com/article/2014/06/05/usa-california-carbonoffset-idUSL1N0OM01R20140605.

128 Further information is available at: http://www.arb.ca.gov/cc/capandtrade/protocols/riceprotocol.htm.

129 Global Warming Solutions Act of 2006, §95970.

130 WCI, ‘Offset System Essential Elements Final Recommendations Paper’, 26 Jul. 2010, available at: http://www.westernclimateinitiative.org/component/remository/Offsets-Committee-Documents/Offsets-System-Essential-Elements-Final-Recommendations.

131 See Mitra, M. & Stoll, M., ‘California Market for Hard-to-Verify Carbon Offsets Could Let Industry Pollute As Usual’, Earth Island Journal, 3 Jul. 2013Google Scholar, available at: http://www.earthisland.org/journal/index.php/elist/eListRead/californias_market_for_carbon_offsets_could_let_industry_pollute_as_usual.

132 B. Aguila, ‘California’s Compliance Offset Program’, 2 Mar. 2014, available at: https://www.thepmr.org/system/files/documents/ARB%20Offsets%20PMR%20webinar%202014%20FINAL_Mexico.pdf.

133 On 25 Jan. 2013, the San Francisco Superior Court rejected a challenge to the offsets policy: see Citizens Climate Lobby v. California Air Resources Board, Cal. Super. Ct., No. CGC-12-5195544 (25 Jan. 2013).

134 Interview with Air Resources Board, Sacramento, CA (US), May 2013.

135 Ibid.

136 Global Warming Solutions Act of 2006, §95972.

137 On 12 Dec. 2012, Quebec adopted three offset protocols, which were made available for public review during a consultation period. They also respond to the comments from the staff of the California Air Resources Board to ensure programme harmonization. For further information see the Environment Quality Act (Quebec), Ch. IV, available at: http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=3&file=/Q_2/Q2R46_1_A.HTM.

138 E.g. Greenpeace, Outsourcing Hot Air: The Push for Sub-National REDD Offsets in California’s Carbon Market from Mexico and Beyond, Sept. 2012, available at: http://www.greenpeace.org/international/Global/international/publications/forests/2012/REDD/OutsourcingHotAir.pdf.

139 M. Peters-Stanley, ‘Offset Providers Ink Deal over Landmark Forest Conservation Project in Acre, Brazil’, Ecosystem Marketplace, 24 Jan. 2013, available at: http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=9564&section=news_articles&eod=1.

140 Interview with Air Resources Board, Sacramento, CA (US), May 2013.

141 The states may choose measures to meet the goal, including market-based trading programmes: see US Environmental Protection Agency, ‘Clean Power Plan Proposed Rule’, 14 Aug. 2014, available at: http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule.

142 RGGI, ‘Overview of RGGI CO2 Budget Trading Program’, Oct. 2007, available at: www.rggi.org/docs/program_summary_10_07.pdf.

143 RGGI, ‘Model Rule’, XX-6.5(a)(3)(i).

144 Ibid., XX -6.5(a)(3)(ii) and (iii).

145 Further information is available at RGGI, ‘RGGI 2012 Program Review: Summary of Recommendations to Accompany Model Rule Amendments’, at p. 2, available at: http://www.rggi.org/docs/ProgramReview/_FinalProgramReviewMaterials/Recommendations_Summary.pdf.

146 RGGI, ‘Model Rule’, XX-1.2 (z)(bl) and XX-6.5 (3)(ii).

147 Ibid., XX-10.3. See RGGI, ‘CO2 Offsets’, available at: http://rggi.market/offsets/process.

148 Interview with RGGI, Albany, NY (US), May 2013.

149 RGGI, ‘Model Rule’, XX-10.5.

150 As an indication that it would go ahead with offsets, on 11 Mar. 2014 the RGGI released a request for proposals for US Forest Projects Offset Protocol Document Services. For further information see RGGI, ‘Request for Proposals #14-01: U.S. Forest Projects Offset Protocol Model Document Services’, 10 March 2014, available at: http://www.rggi.org/docs/Forestry_Offsets_Model_Docs_RFP_2014-03-10.pdf.

151 Thomas, Dargush & Griffiths, n. 52 above.

152 He, G. & Morse, R., ‘“Addressing Carbon Offsetters” Paradox: Lessons from Chinese Wind CDM’ (2013) 63 Energy Policy, pp. 1051–1055CrossRefGoogle Scholar.

153 Jiang, X. & Hao, F., ‘Legal Issues for Implementing the Clean Development Mechanism in China’ (2011) 4(1) Journal of East Asia and International Law, pp. 7–40CrossRefGoogle Scholar. See further Jiang, X., Legal Issues for Implementing the Clean Development Mechanism in China (Springer, 2013)CrossRefGoogle Scholar.

154 Operation and Management Measures of the Clean Development Mechanism Projects (People’s Republic of China) NDRC, Ministry of Science and Technology, Ministry of Foreign Affairs and Ministry of Finance, Order No [2011] 11, 3 Aug. 2011.

155 UNFCCC, ‘Designated National Authorities’, available at: http://cdm.unfccc.int/DNA/view.html?CID=46.

156 Cai, W., Wang, C., Chen, J. & Wang, S., ‘Sectoral Crediting Mechanism: How Far China Has to Go’ (2012) 48 Energy Policy, pp. 770–778CrossRefGoogle Scholar. See further Carrapatoso, A., ‘Climate Policy Diffusion: Interregional Dialogue in China-EU Relations’ (2011) 23 Global Change, Peace & Security, pp. 177–194CrossRefGoogle Scholar, at 193.

157 NDRC Notice on Initiating Pilot Emissions Trading Programs (People’s Republic of China) NDRC, Order No. [2011] 2601, 29 Oct. 2011.

158 Interim Measures for the Administration of Voluntary Greenhouse Gas Emission Reduction Transactions (People’s Republic of China) NDRC, Order No. [2012] 1668, 29 Oct. 2011.

159 Interim Measures for Regulating the Offset Scheme in Beijing’s Pilot Program (People’s Republic of China) Beijing Municipal Development and Reform Commission and Beijing Municipal Forestry Bureau, Order No. [2014] 6, 1 Sept. 2014.

160 For further information see China Certified Emission Reduction Exchange and Info Platform, available at: http://cdm.ccchina.gov.cn/zylist.aspx?clmId=162.

161 Interim Measures for the Administration of Voluntary Greenhouse Gas Emission Reduction Transactions, n. 158 above, Art. 13. Carbon Market News, ‘China to Inject around 6 Million Offset Credits into Domestic Carbon Market’, Point Carbon, 5 Jun. 2014, available at: http://uk.reuters.com/article/2014/06/05/china-carbon-idUKL3N0OM0V520140605.

162 China Certified Emission Reduction Exchange and Info Platform, ‘Validated Projects’, available at: http://cdm.ccchina.gov.cn/sdxm.aspx?clmId=163.

163 Scott, n. 2 above, at pp. 62–3.

164 A finding that Bogojević (n. 18 above, at p. 50) makes about the EU ETS overall.

165 Scott, n. 2 above, at pp. 48–51.

166 Gilad, n. 5 above, at p. 488.

167 Brousseau & Glachant, n. 17 above, at p. 36.

168 Lovell & Liverman, n. 57 above, at p. 265.

169 Paterson, n. 10 above, at p. 363.

170 Gilad, n. 5 above, at p. 498. Australia provides confirmation of this now that the carbon pricing mechanism and emissions trading scheme have been repealed. One effect is the elimination of a compliance market for offsets. For further information see Australian Government, Department of the Environment, ‘Repealing the Carbon Tax’, available at: http://www.environment.gov.au/climate-change/repealing-carbon-tax.

171 For instance, Lohmann, n. 16 above, at p. 248.

172 Baldwin, R., ‘Regulation Lite: The Rise of Emissions Trading’ (2008) 2(2) Regulation & Governance, pp. 193–215CrossRefGoogle Scholar.

173 Though this is not the place to make a comparison of the merits of the broad types (command-and-control, market mechanism and new governance); our research has been confined to a particular instance of the market mechanism.