Policing carbon markets

Carbon markets have emerged in recent decades as one of the most important tools for curbing industrial greenhouse gas emissions, but they present a number of novel enforcement challenges when compared with more conventional pollution regulations. These challenges include new regulators with narrow authority, lack of legal precedent, and more. This paper aims to shed light on the practical issues involved in policing carbon markets. The authors present the first comprehensive analysis of the EU Emissions Trading System, a single programme that has been policed by 31 different national regulators. They find generally high rates of compliance but these have occurred alongside low rates of enforcement, a pattern that is known as the ‘Harrington paradox’. Variation in the probability and severity of fines explain just one-tenth of the variation in compliance rates. Enforcement strategies besides fines, such as ‘naming and shaming’, appear to have had little discernible effect on compliance either.