Carbon markets – will they work?

One of the solutions to market failure that you need to understand is the use of tradable permits.  The article explains how these work.  It also explains that one of the major problems facing the schemes starting up at the moment is the international nature of the pollution problem.  Pollution does not respect international boundaries, and it certainly doesn’t turn back when it gets to the border without a visa.  As a result of this any schemes that operate in just one country are often seen as putting domestic producers at a disadvantage in terms of their international competitiveness.  Consequently, in order for a scheme to be effective it needs to be international, and getting this to work is politically problematic.

BBC article – Carbon market clouded by uncertainty