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Demand in a Fragmented Global Carbon Market: Outlook and Policy Options

image of Demand in a Fragmented Global Carbon Market: Outlook and Policy Options

The global carbon market currently faces a deep demand crisis. The consequent price fall reduces the incentive to make low-carbon investments and thus increases the risk of locking in carbon-intensive infrastructure. The global carbon market relies on ambitious climate policy and consists of a mosaic of different schemes. Despite the current lack of ambitious global climate policy, various market-based approaches are emerging around the world, indicating increasing scope and fragmentation of the carbon markets. This report, conducted by GreenStream together with Climate Focus, analyses the status and outlook of global carbon markets and identifies measures and circumstances how new demand for carbon credits could be created to strengthen global efforts to limit the global average temperature rise to 2°C, taking into account the trend towards fragmentation of carbon markets.

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Key conclusions and political options for the Nordic countries

Demand for international credits during 2008–2012 was driven by the internationally binding Kyoto caps whereas 2013–2020 demand stems mainly from voluntary pledges, some of which have been converted into nationally/regionally binding targets and new Kyoto caps. Sovereign and private demand for international credits depends on the extent to which their use for compliance is allowed, as well as the required level of the mitigation effort.

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