Investigating the Paradox of Carbon Markets

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The compliance and voluntary carbon markets under the Kyoto Protocol of 1997 were designed to reduce global greenhouse gas emissions by providing flexible, cost-effective mechanisms for countries and businesses to meet their targets. The compliance carbon market included mechanisms like emissions trading, the Clean Development Mechanism (CDM), and Joint Implementation (JI), which allowed countries to trade carbon credits and invest in emissions reduction projects. The voluntary carbon market enabled companies and individuals to purchase carbon credits to offset their emissions outside the legally binding obligations of the Protocol. However, both markets faced significant challenges and shortcomings. The compliance market struggled due to issues like insufficient enforcement and over-allocation of carbon credits. Many countries, particularly in Europe, exceeded their emission reduction targets by a large margin, creating a surplus of credits that undermined the market's effectiveness. Furthermore, the financial crisis of 2008 led to a reduction in demand for carbon credits, and the lack of a robust international legal framework for enforcement weakened the market.