ABSTRACT
Although carbon markets have their conceptual origin in economic theory, they are – like other markets – a social construct built on legal rights and obligations. Law becomes relevant on both a theoretical and a more practical level. Economic theory has long posited that enforceable property rights are necessary to address externalities with bargained outcomes. Predictability, transparency, and accountability, all of which are necessary conditions for market efficiency, likewise rely on a stable regulatory framework. In the case of carbon markets, even the transacted units – allowances and credits, as well as their derivatives – are the product of regulatory fiat or contractual arrangement, lacking fundamental or intrinsic value. On a more practical level, legal considerations also play a central role in the design and implementation of carbon markets. From the initial establishment through operationalisation of major design features, rules and procedures enshrined in normative acts of varying legal pedigree and drawn from different areas of law substantiate the carbon market. Even individual transactions are based on legal contracts, and can lead to disputes that require judicial settlement or arbitration. Tracing both the foregoing theoretical and practical dimensions, this chapter discusses the complex and diverse – yet also critically important – roles of law in governing carbon markets.
Michael Mehling, The Law of Carbon Markets, in Harro van Asselt and Jørgen Wettestad (eds), Handbook of Carbon Markets (Edward Elgar Publishing, 2026), Chapter 4, pp 51-69.
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