Researchers from University of Edinburgh established that free market platforms such as the European Climate Exchange (ECX) provide an efficient way to combat climate change. The study published in the International Journal of the Economics of Business suggests that these platforms might serve as a foundation for a mandatory international emissions cap and trade schemes.
The team of scientists monitored the fluctuation of trade values at the ECX, the world’s biggest carbon trading platform. These values increased after the stock market closed, indicating that trades are made when there is more precise and detailed information. When all aspects and available information are incorporated, there is an immediate availability of a trading party, and clear increase in transparency.
ECX was established back in 2005 as part of the EU Emissions Trading Scheme. It essentially controls the amount of emissions each company or a firm is sending to the atmosphere. By setting limits and issuing permits, the EU regulates the levels of greenhouse gasses, and penalizes establishments that do not comply with the regulations.
In order to reduce or avoid the penalties, firms are allowed to buy permits from other companies. This trade takes place on platforms such as ECX. But the European economic crisis affected this market and the EU Trading Scheme, hence adjustments should be done relatively soon in order to sustain them.
The changes that the Eurozone in terms of industrial production and financial stability should be projected onto the trading schemes, and emission caps should be self-adjusted using the effective ECX platform, the study suggests.
According to the authors, companies need incentives in order to continue cutting back on emissions. Gbenga Ibikunle, from the University of Edinburgh Business School, is convinced that the best way to do so is by implementing free market mechanisms.