Banks and investors are pulling out of the carbon market after the failure to make progress at Copenhagen on reaching new emissions targets after 2012.
Carbon financiers have already begun leaving banks in London because of the lack of activity and the drop-off in investment demand.
Because carbon is a globally mixed discharge--my emissions have the same global impact as would a German's--regional markets have a fundamental difficulty: Restricting domestic carbon emissions simply reduces the relative price of producing carbon intensive goods internationally. In other words, without a global agreement, and/or effective and binding border price adjustments that price the carbon content of imports at the domestic carbon price, the demand for domestic carbon allowances will be roughly zero--as will be the market price of carbon.
