State of the Carbon Market: How the future market can encourage developing country participation

The document analyzes the role of carbon markets in financing climate action in developing countries, estimating potential revenues and evaluating different market mechanisms. It argues that while the Clean Development Mechanism (CDM) has provided a starting point, expanding to sectoral and allocation-based mechanisms is necessary to cover the high-emitting electricity and industrial sectors of Major Developing Economies (MDEs). The paper proposes a phased approach to developing country participation, moving from broadened CDM and other market mechanisms for sustainable development (MMSDs) toward sectoral and economy-wide commitments, contingent on developed countries meeting their own stringent targets.

• The global carbon market was valued at US$64 billion in 2007, with the European Union Emissions Trading Scheme (EU-ETS) accounting for 70 per cent of that value.
• Developing country revenue from carbon markets is highly uncertain and depends on carbon prices and market access; assuming they supply 50 per cent of developed country demand, revenue could range from US$10-300 billion in 2020 and US$55-900 billion in 2050, based on prices between US$10 and US$100 per tonne of CO2.
• Indirect support through the auctioning of all developed country allowances could theoretically generate revenues for developing countries several times higher than direct carbon market sales, though political and economic constraints make this unlikely in practice.
• Major Developing Economies (MDEs)—Brazil, India, Indonesia, China, Mexico, South Africa, and South Korea—accounted for over 60 per cent of non-Annex I CO2 emissions in 2006, with China alone representing 43 per cent.
• Approximately 60 per cent of Certified Emission Reductions (CERs) from registered Clean Development Mechanism (CDM) projects are based on electricity generation, with China dominating the pipeline due to high avoided coal emissions factors.
• Allocation-based Market Mechanisms for Sustainable Development (MMSDs), such as crediting Nationally Appropriate Mitigation Actions (NAMAs) or Sustainable Development Policies and Measures (SD-PAMs), offer the highest potential to bring large portions of developing country emissions under market measures.
• Sectoral CDM is identified as a promising way to scale up mitigation in energy-intensive industrial and electricity generation sectors by using common baselines rather than project-by-project additionality.
• Reducing Emissions from Deforestation and Forest Degradation (REDD) represents a significant mitigation opportunity, but its integration into carbon markets faces challenges regarding permanence, monitoring, and the risk of 'swamping' the market with cheap credits.
• The paper proposes a six-step phased approach for developing country participation: starting with the current CDM, moving to a broadened CDM, other MMSDs, developing country sectoral commitments (DCSC), economy-wide commitments, and finally taxation or auctioning of allowances.
• Carbon markets are considered unsuitable for direct adaptation delivery, but can contribute indirectly through integrated mitigation-adaptation projects or by using revenues from taxes and auctions.

APA

Wooders, P., & Nolet, J. (2009). State of the Carbon Market: How the future market can encourage developing country participation. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/state_carbon_future_market.pdf

Chicago

Wooders, Peter, and Jean Nolet. State of the Carbon Market: How the future market can encourage developing country participation. International Institute for Sustainable Development, 2009. https://www.iisd.org/system/files/publications/state_carbon_future_market.pdf.

Wikipedia

{{cite report |last1=Wooders |first1=Peter |last2=Nolet |first2=Jean |title=State of the Carbon Market: How the future market can encourage developing country participation |publisher=International Institute for Sustainable Development |date=March 2009 |url=https://www.iisd.org/system/files/publications/state_carbon_future_market.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{wooders2009state, author = {Wooders, Peter and Nolet, Jean}, title = {{State of the Carbon Market: How the future market can encourage developing country participation}}, institution = {International Institute for Sustainable Development}, year = {2009}, month = mar, url = {https://www.iisd.org/system/files/publications/state_carbon_future_market.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }