Regulators’ efforts to shape business responses to climate change centre on the development of CO2 markets. These are designed to deliver significant CO2 emission reductions at the lowest possible cost to industry. However, the potential of these mechanisms is not currently being realised. Research conducted by Dr Gareth Veal (University of Bath), with colleagues at the University of Bath and Lancaster University, explores the problems with the current design of CO2 markets.

The research recommends that CO2 emission regulation places more focus on the urgency of climate change mitigation, and provides businesses with the regulatory certainty and incentive to realign their operational and investment priorities. This could be done through simpler forms of regulation, such as taxes or mandates, and by placing responsibility for compliance and reporting with the CEO. The findings are based upon case studies, which examine the operation of the European Emissions Trading Scheme.