The Wall Street Journal examines the effectiveness of the UN carbon-trading scheme today in an article debating the pros and cons of funding coal and natural gas projects in India and China. Critics of the funding claim that financing is being diverted to these projects from renewable energy projects. The trading scheme has also been accused of financing power plants and cleaner coal-burning technology that would have been constructed otherwise.

Both criticisms miss the point. If the carbon-trading scheme is a free market, renewable energy projects would find themselves being financed on their own merit. For example, current market prices, according to the WSJ article, are ~$13 per ton of carbon emissions. If solar projects can be financed and replace carbon emissions at cheaper rates, participating companies would buy them naturally.

The key is whether or not the UN scheme is a free market. Do projects of all colors and sources receive equal consideration? How good are disclosures and monitoring on these projects? When developed and developing countries get together to formulate such global markets, the quality and access to information will be key to good buyer-seller outcomes, and for us, a cleaner world.