Redshaw Advisors Logo
Subscribe →

Carbon Market Design

Carbon Market Design: Maximizing Liquidity and Ensuring Success

The Paris Agreement highlighted the importance of utilizing markets in the fight against climate change. Well-designed carbon markets offer cost-effective emissions reductions and are more efficient and appealing to businesses compared to taxation or direct regulation. Implementing effective carbon markets is a crucial component of global efforts to combat greenhouse gas (GHG) emissions. A properly designed market attracts new capital, ensures liquidity, and sends reliable carbon price signals.

The key to a successful carbon market lies in its design, particularly in maximizing liquidity, which is the lifeblood of markets. Ignoring liquidity considerations can lead to economic inefficiency and a lack of reliable carbon price signals. Liquidity is influenced by various factors:

  • Price transparency: Good liquidity requires readily available market price information for participants.
  • Market depth: Abundant volume should be available for buying and selling in order to maintain good liquidity.
  • Bid/offer spreads: Close pricing of buy and sell offers contributes to good liquidity.
  • Transaction costs: Low costs of market access relative to market prices enhance liquidity.
  • Barriers to market entry: Easy market access and minimal regulatory hurdles encourage good liquidity.

Market Maker

Carbon markets are typically implemented rather than arising spontaneously from natural supply and demand. Therefore, experience in directly participating in these markets is often a missing ingredient. The Redshaw Advisors team, led by founder Louis Redshaw, has extensive experience in carbon trading. They played a crucial role in establishing liquidity by standardizing EUA trading contracts and kick-starting the secondary CER markets. The team has been involved in trading more than 8 billion tonnes of carbon across various Emissions Trading Schemes (ETS) worldwide, including the California cap and trade system and RGGI.

Redshaw Advisors offers expertise and advice on designing and implementing successful carbon markets. They provide guidance to governments, supra-nationals, exchanges, trade associations, and companies. Their deep knowledge and experience can help ensure the effectiveness and success of carbon markets in achieving emissions reduction goals.

Share this:

More Insights

Public consultation launched for including Greenhouse Gas Removals in the UK ETS

Introduction The risks associated with climate change demand an urgent worldwide response. Reaching the temperature targets set out in the 2015 Paris agreement requires greenhouse […]
Read More

Compliance carbon markets, a bright future ahead

Compliance carbon markets have become an essential tool for lawmakers around the world, and commodity researchers believe that their rise will continue throughout the next […]
Read More
wind turbines in a wind field

The Challenge of Carbon Leakage and Proposed Solutions for Allocation in the EU ETS

Carbon leakage refers to the risk faced by companies relocating their production outside Europe due to increased costs associated with climate policies. This results in […]
Read More
1 2 3 69
All Insights

Subscribe to the

Stay ahead with our WeeklyRed  - your go-to source for comprehensive, insightful updates on global compliance and voluntary markets as well as renewable energy.
Every Monday, fresh into your inbox.
2024 Redshaw Advisors Ltd. All rights reserved.