See Inside December 2007

Making Carbon Markets Work

Limiting climate change without damaging the world economy depends on stronger and smarter market signals to regulate carbon dioxide
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The odds are high that humans will warm Earth’s climate to worrisome levels during the coming century. Although fossil-fuel combustion has generated most of the buildup of atmospheric carbon dioxide (CO2), effective solutions will require more than developing cleaner energy sources and hoping for their wide adoption. Equally important will be establishing institutions and strategies—particularly markets, business regulations and government policies—that will provide incentives for companies to apply innovative technologies and practices that reduce emissions of CO2 and other climate-altering greenhouse gases.

The challenge is immense. Traditional fossil-fuel energy is so abundant and inexpensive that climate-friendly substitutes have little hope of acceptance without robust policy support. Unfortunately, for nearly two decades negotiations on binding treaties that limit global emissions have produced only meager progress. But that has not stopped policymakers in Europe and other regions where public concern about climate change is strongest from implementing initiatives that offer lessons on how best to curb the planet’s high-carbon diet.

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