Evolving Carbon Market Systems: The Role of Policy Diffusion in Shaping Design Properties

Abstract

This paper examines the extent to which and how the spread and design of carbon trading systems worldwide have been shaped by international policy diffusion. We highlight eight central design characteristics and identify nine cases for further scrutiny. Focusing on similarities and differences across the cases, we find that international diffusion can explain both converging and diverging designs. While the former observation is in line with the traditional understanding of diffusion leading to convergence as actors adopt a policy initiated by others, it is more striking that policy diffusion stands forth as important for understanding design divergence. Evidence presented in this paper demonstrates that diffusion mechanisms interact with and contribute to the evolution in the policy as it diffuses over time. Hence, we argue that policy convergence is not necessarily a great measure of diffusion because the policy is not the same over time. The policy divergences, partly rooted in different domestic conditions and political constraints, mean that no linked global system is likely in the near future, although the spread of the policy model can be seen as promising for a future emissions trading regime from below.