Trading activity and market liquidity in tradable mobility credit schemes

The interest in tradable mobility credits (TMC) is growing steadily. Compared to existing instruments, its cap-and-trade design for the demand side ensures that a limited quantity, e.g., traffic and related emissions, can by design not be exceeded. However, most TMC schemes are market-based financial instruments that can only be successful, if the market ensures the most efficient allocation of resources and if one can rely on the price. Hence, TMC schemes require trading activity and a liquid market that only emerges when participants are able and willing to trade. In this paper, we systematically review the TMC literature for aspects of trading activity and market liquidity, summarize the literature streams, and discuss determinants of participants' ability and willingness to trade TMCs. During the literature review we separate those into demand-side, supply-side, and market regulation factors. This first coherent discussion of creating liquid TMC markets with substantial trading activity challenges the instrument and allows us to draw valuable conceptual implications for the TMC scheme design, but also implications for stakeholders beyond concept. Generating trading activity and liquid markets is thoroughly possible, but robustly achieving it can be challenging.