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

This research paper by the International Institute for Sustainable Development (IISD) examines how carbon markets can be leveraged to fund greenhouse gas (GHG) mitigation and adaptation in developing countries. It analyzes the current state of the market, estimates potential future demand and revenue, and proposes a phased approach for developing country participation, ranging from expanded project-based mechanisms to absolute emission caps.

• The global carbon market reached a value of US$64 billion in 2007, with the European Union Emissions Trading Scheme (EU-ETS) accounting for approximately 70 per cent of that value.
• Developing country revenue from carbon markets is highly dependent on demand and price; 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 carbon prices between US$10 and US$100 per tonne of CO2.
• Current Clean Development Mechanism (CDM) projects are heavily concentrated in China and the electricity generation sector, with approximately 60 per cent of registered project CERs based on electricity generation and China projected to receive 73 per cent of credits from the pipeline as of early 2009.
• To achieve significant emission reductions, carbon markets must expand beyond 'low hanging fruit' to include Major Developing Economies (MDEs) in the electricity and manufacturing sectors, as well as the forestry and agriculture sectors, particularly in non-MDE countries.
• The paper proposes a six-step phased approach for developing country participation: starting with the current CDM, moving to a broadened CDM, other Market Mechanisms for Sustainable Development (MMSDs), developing country sectoral commitments (DCSC), economy-wide commitments, and finally taxation or auctioning of allowances.
• Allocation-based MMSDs, such as crediting Nationally Appropriate Mitigation Actions (NAMAs) or Sustainable Development Policies and Measures (SD-PAMs), are identified as having the largest potential to bring significant portions of developing country emissions into market mechanisms.
• Reducing Emissions from Deforestation and Forest Degradation (REDD) is highlighted as a high-potential area for immediate action, though it faces challenges regarding monitoring, permanence, and the risk of 'swamping' the market with too many credits.
• Indirect support through the auctioning of emission allowances could theoretically generate far more revenue for developing countries than direct market access, but political resistance regarding competitiveness and the transfer of funds abroad remains a major barrier.
• Developing countries may be more likely to accept 'no-lose' intensity targets for specific sectors initially, which avoid the economic downside of absolute caps while still providing incentives for mitigation.

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} }