8.3.3 Governing Carbon Markets
The rules for governing a carbon market are
essential to its efficient and robust functioning.
The governance of a carbon market can include a
wide variety of different decisions and design
options. However, several design considerations
common to all carbon markets are particularly
important. These include decisions regarding:
• coverage of emissions;
• banking of emissions units;
• international linking and the use of offsets;
• the use of price stabilisers; and
• provisions for secondary market development.
(1) Coverage
Broad coverage and market design that encourages cost pass-through and increases the efficiency
of an ETS can improve its robustness. Coverage
rules determine which sectors and greenhouse
gases incur a carbon price liability; cost
Fig. 37 Differentiated and declining assistance in the Australian ETS signalled transition to auctions. Source Vivid
Economics
Fig. 38 Coverage decisions and the level of cost pass-through determine the mitigation options available. Source
Vivid Economics
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