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…resulting in pricing of carbon emissionA single global price for carbon is not (yet) in sight, becausethere is no global carbon market and thus no politicalconsensus and supporting infrastructure. Still, market-linkingthrough project-based and other mechanisms encouragearbitrage, and this should reveal a global carbon price range.The primary drivers of carbon prices are – at least in the longterm – the number of credits created, the expected demandfrom industry, and the ease of closing any shortfall betweensupply and demand, using technology and investmentsavailable during the relevant commitment period.Financial data show that carbon prices are highly volatile.The traded commodity is artifi cially ‘created’ and based onnumerous methods to decrease emissions – from energyeffi ciency to renewable energy sources – implying that pricedetermination is highly arbitrary.…and new financial marketsBased on the foundation of trading in emission reductionrights – in AAUs, EUAs, CERs, ERUs and RMUs – new fi nancialmarkets have emerged. Contractual and fi nancial instrumentsare being developed to allow trading and to manage risks.Markets in spot, future and option contracts are increasinglymaturing. The usual agents – brokers, traders, banks and thelike – are providing intermediation services, and the fi nancialsector at large is looking to seize the opportunities provided bycarbon trading, resulting in new insurance products, derivativesand loan schemes. The development of fi nancial markets hasbeen an important element in funding emission reductionprojects and activities. Generally referred to as ‘CarbonFinance’, trade in emission reduction rights awarded to projectsprovides revenue streams and leverage for other sources offi n a n c e .Assessing the success of Carbon TradingOne of the main objectives of Carbon Trading is to reduce GHGemissions. Its success, and more specifi cally the success of itsunderlying mechanisms, is therefore most often measured interms of resulting emission reduction or – as a proxy for this –the volume of emission rights traded. Assessing effectivenessis, however, highly complicated because the impact ofcarbon trading has to be isolated from other policy measures,22