Technically speaking, the Kyoto Protocol died in December, 2012, the endpoint of its official legal standing. Of course, it was supposed to be replaced by a subsequent agreement to have been negotiated in Copenhagen, but that long-prepared conference was a failure, with ultimately the US and China unable to come to a deal, and with those coming out of that disaster putting off for later a new round and agreement, with the current official hopes for there to be one reached in 2015. As these things go, much as with federal budgets, when there is no official successor, the predecessor remains de facto in place, and that has been the case, more or less, for the now officially defunct Kyoto Protocol, put into place to deal with global warming (or "climate change," a term that I find uselessly vague for what is going on).
In any case, one of the main institutions established under the impetus of the Kyoto Protocol was the European carbon market. The front page of the Washington Post today reports that "Europe's carbon market goes bust." From nearly $30 per metric ton in June 2008, the price has now fallen to $3.05 in the European market, with a price of around $10 in the new California carbon market. Given the idea that a new agreement would build off the former one, this collapse of functioning of probably the main institution to come out of Kyoto is very disturbing in terms of developing a coherent successor to Kyoto. The Kyoto Protocol may in fact be seriously dead, or at least moribund.
Various elements have led to this outcome. When the overall cap in terms of aggregate carbon emissions was set, full information on the situation in Europe was not fully known. Many argue that this led to this initial cap being set too high. Since then, the Great Recession hit, with a double dip now in place in place there. With falling output, emissions have fallen as well. From the standpoint of reducing CO2 emissions, this is a good thing, but this reduced demand has pretty much tanked the market. The final blow is that an effort to tighten the cap in the European Parliament was rejected, with such heavily coal burning nations as Poland leading the opposition to any cap tightening.
If this were not bad enough, there is now the likelihood that in the near term the pressure to do something may reduce as it appears that the trend to atmospheric warming may be slowing, http://econospeak.blogspot.com/2013/05/blowing-in-the-wind-is-global-warming-over.html . However, it should be made clear that there has been no slowing of global warming. What is going on is that much of the heating is currently going into oceans at levels deeper than 700 meters. As long as CO2 continues to accumulate in the atmosphere, warming will continue, and at some point the locus of this warming will return to the upper oceans and the atmosphere. But in the meantime, there is a danger that there will be no successor to Kyoto while the remnants of Kyoto break down.
The increase of these problems in the European carbon market has encouraged those who favor a carbon tax as an alternative to cap and trade systems. Figures as diverse as Joseph Stiglitz and Greg Mankiw have long been in the "Pigovian" camp, arguing for the superiority of a carbon tax, particularly now in the time of Grand Bargain budget negotiations, hoping that a door might be open to some sort of tax increase, despite the extreme opposition to any tax increases by Congressional GOPsters, unless of course they are undoing fica tax cuts. I can appreciate that under these circumstances, supporters of a carbon tax see a possible opening.
Frankly, I do not oppose a carbon tax being imposed in the US, even if in Virginia an anti-carbon tax has just been imposed by making hybrid car owners pay an extra fee. What I see are two problems for relying on this as a way to develop a global system of carbon emissions governance to succeed Kyoto. One is that it is very difficult to develop cross-border harmonization of such taxes. The Scandinavian countries attempted this some years ago, passing carbon taxes with a proviso to have cross-border adjustments related to trade, but have been unable to come to an agreement. If the best governed nations in the world, basically friendly towards each other and at equal levels of economic development cannot do it, I find it highly unlikely that an agreement on this will be manageable between the US and China.
The other is the fact that for all its current troubles, there is already a nascent mechanism in place in the form of the troubled European carbon market. While the price is down now, when the European economy finally recovers (notice my breathless optimism here), demand for carbon credits will resume, and indeed it was fear of the price rising too much if the cap is tightened that was a central argument by the Poles and other opponents of tightening the cap in Strasbourg. Particularly in Europe there is much annoyance with how the US has handled this whole issue, with the US pushing carbon markets at Rio and then Kyoto, with the Europeans being the ones supporting taxes. They went along with carbon markets in order to please the US, who then failed to ratify the Kyoto Protocol. Now with prominent US economists pushing the idea of a carbon tax, the attitude in Europe is highly negative, along the lines of "Why should we try to do what you want us to do yet again when you shafted us the last time we did so?" For better or worse, the remnant Kyoto mechanisms probably remain the best chance for any future global agreement on this matter.