A carbon market will work exactly as designed, but anticipated health and environmental benefits will not be realized. B. Market and financial incentive schemes can exacerbate policy inflexibility and constrain adaptability Once market-based and financial incentive programs are established, they are increasingly difficult to modify as circumstances warrant. Those who were skeptical of market-related measures in the first place usually view any future modification as an attempt by dischargers to backslide from initial commitments. Holders, buyers and sellers of emission rights or entitlements will typically resist system changes that could devalue their investments or financial expectations. It is not unusual, of course, for basic goals and objectives to change in public policy.
Some implementation approaches, however, can accommodate change more easily than others can.
Market-based regimes are not only less flexible than most policy options, they are extremely sensitive to relatively small information and data variations. Assume, for instance, that those who believe human carbon emissions are causing global warming are correct. Most international carbon trading regime proposals are founded on the IPCC s or similarly pessimistic scenarios. Should a trading system be implemented consistent with these predictions and global warming occur at a less rapid pace, the self-interested calculus that is supposed to drive the carbon market will not function as planned. It will almost certainly, however, prove very difficult to modify an existing regime to account for changed priorities.