Emissions trading (or emission trading) is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. The term administration, as used in the context of Government, differs according to Jurisdiction. Pollution is the introduction of contaminants into an environment that causes instability disorder harm or discomfort to the physical systems or living organisms they are in Economics is the social science that studies the production distribution, and consumption of goods and services. In Economics, an incentive is any factor (financial or non-financial that provides a motive for a particular course of action or counts as a reason for preferring one choice Pollution is the introduction of contaminants into an environment that causes instability disorder harm or discomfort to the physical systems or living organisms they are in It is sometimes called cap and trade.

A coal power plant in Germany. Due to emissions trading, coal might become less competitive as a fuel.

A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. A government agency is a permanent or semi-permanent organization in the Machinery of government that is responsible for the oversight and administration of specific functions Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. Emissions trading --> This article deals with carbon credits for international trading and the scams associated with it The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. Trade is the willing exchange of goods, services, or both Trade is also called Commerce. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society. ^[1]

There are active trading programs in several pollutants. For greenhouse gases the largest is the European Union Emission Trading Scheme. Greenhouse gases are gaseous constituents of the atmosphere bothnatural and anthropogenic that absorb and emit radiation at specific wavelengths within the spectrum of thermal infrared The European Union Emission Trading System (EU ETS is the largest multi-national Emissions trading scheme in the world and is a major pillar of EU climate policy ^[2] In the United States there is a national market to reduce acid rain and several regional markets in nitrous oxide. Acid rain is Rain or any other form of precipitation that is unusually Acidic It has harmful effects on plants aquatic animals and infastructure ^[3] Markets for other pollutants tend to be smaller and more localized.

Carbon trading is sometimes seen as a better approach than a direct carbon tax or direct regulation. A carbon tax is an environmental Tax on emissions of Carbon dioxide and other Greenhouse gases It is an example of a pollution tax. By solely aiming at the cap it avoids the consequences and compromises that often accompany those other methods. It can be cheaper, and politically preferable for existing industries because the initial allocation of allowances is often allocated with a grandfathering provision where rights are issued in proportion to historical emissions. A grandfather clause is a term used in US English for an exception that allows an old rule to continue to apply to some existing situations when a new rule will apply to all future situations In addition, most of the money in the system is spent on environmental activities, and the investment directed at sustainable projects that earn credits in the developing world can contribute to the Millennium Development Goals. Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present Critics of emissions trading point to problems of complexity, monitoring, enforcement, and sometimes dispute the initial allocation methods and cap. ^[4]

Overview

The overall goal of an emissions trading plan is to reduce emissions. The cap is usually lowered over time - aiming towards a national emissions reduction target. In other systems a portion of all traded credits must be retired, causing a net reduction in emissions each time a trade occurs. In many cap and trade systems, organizations which do not pollute may also participate, thus environmental groups can purchase and retire allowances or credits and hence drive up the price of the remainder according to the law of demand. The environmental movement, a term that includes the conservation and green movements is a diverse scientific social and Political movement for Supply and demand is an Economic model describing effects on price and quantity in a Market. Corporations can also prematurely retire allowances by donating them to a nonprofit entity and then be eligible for a tax deduction.

Because emissions trading uses markets to determine how to deal with the problem of pollution, it is often touted as an example of effective free market environmentalism. Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information Free-market environmentalism is a position that argues that the Free market, Property rights, and Tort law provide the best tools to preserve the health While the cap is usually set by a political process, individual companies are free to choose how or if they will reduce their emissions. In theory, firms will choose the least-costly way to comply with the pollution regulation, creating incentives that reduce the cost of achieving a pollution reduction goal.

Emissions trading principles are based on proposals by the Technocracy movement of the 1930's. Technocracy is a form of government in which scientists and technical experts are in administrative or decision making control Technocracy proposed a system of Energy Accounting, or emissions trading, to promote balanced and harmonious development throughout the world. Energy Accounting is the hypothetical system of distribution proposed by Technocracy Incorporated in the Technocracy Study Course, which would record the Energy

Cap and trade versus baseline and credit

The textbook emissions trading program can be called a "cap and trade" approach in which an aggregate cap on all sources is established and these sources are then allowed to trade amongst themselves to determine which sources actually emit the total pollution load. An alternative approach with important differences is a baseline and credit program. ^[5] In a baseline and credit program a set of polluters that are not under an aggregate cap can create credits by reducing their emissions below a baseline level of emissions. These credits can be purchased by polluters that do have a regulatory limit. Many of the criticisms of trading in general are targeted at baseline and credit programs rather than cap type programs.

The economics of international emissions trading

It's possible for a country to reduce emissions using a Command-Control approach, such as regulation, direct and indirect taxes. In politics command and control refers more generally to the maintenance of Authority with somewhat more distributed Decision making. The term direct tax has more than one meaning a colloquial meaning and in the United States a constitutional law meaning The term indirect tax has more than one meaning In the colloquial sense an indirect tax (such as Sales tax, Value added tax (VAT or Goods and services But that approach is more costly for some countries than for others. That's because the Marginal Abatement Cost (MAC) — the cost of eliminating an additional unit of pollution — differs by country. It might cost China $2 to eliminate a ton of CO₂, but it would probably cost Sweden or the U. Carbon dioxide ( Chemical formula:) is a Chemical compound composed of two Oxygen Atoms covalently bonded to a single S. much more. International emissions-trading markets were created precisely to exploit differing MACs.

Example

Emissions trading can benefit both the buyer and the seller through 'Gains from Trade'.

Consider two European countries, namely Germany and Sweden. Each can either reduce all the required amount of emissions by itself or it can choose to buy or sell in the market.

Example MACs for two different countries

For this example let us assume that Germany can abate its CO₂ at a much cheaper cost than Sweden, e. g. MAC_S > MAC_G where the MAC curve of Sweden is steeper (higher slope) than that of Germany, and R_Req is the total amount of emissions that need to be reduced by a country.

On the left side of the graph is the MAC curve for Germany. R_Req is the amount of required reductions for Germany, but at R_Req the MAC_G curve has not intersected the market allowance price of CO₂ (market allowance price = P = λ). Thus, given the market price of CO₂ allowances, Germany has potential to profit if it abates more emissions than required.

On the right side is the MAC curve for Sweden. R_Req is the amount of required reductions for Sweden, but the MAC_S curve already intersects the market price of CO₂ allowances before R_Req has been reached. Thus, given the market allowance price of CO₂, Sweden has potential to profit if it abates fewer emissions than required internally, and instead abates them elsewhere.

In this example Sweden would abate emissions until its MAC_S intersects with P (at R*), but this would only reduce a fraction of Sweden’s total required abatement. After that it could buy emissions credits from Germany for the price 'P' (per unit). The internal cost of Sweden’s own abatement, combined with the credits it buys in the market from Germany, adds up to the total required reductions (R_Req) for Sweden. Thus Sweden can also profit from buying credits in the market (Δ d-e-f). This represents the ‘Gains from Trade’, the amount of additional expense that Sweden would otherwise have to spend if it abated all of its required emissions by itself without trading.

Germany made a profit by abating more emissions than required: it met the regulations by abating all of the emissions that was required of it (R_Req). Additionally, Germany sold its surplus to Sweden as credits, and was paid 'P' for every unit it abated, while spending less than 'P'. Its total revenue is the area of the graph (R_Req 1 2 R*), its total abatement cost is area (R_Req 3 2 R*), and so its net benefit from selling emission credits is the area (Δ 1-2-3) i. e. Gains from Trade

The two R* (on both graphs) represent the efficient allocations that arise from trading.

• Germany: sold (R* - R_Req) emission credits to Sweden at a unit price 'P'.
• Sweden bought emission credits from Germany at a unit price 'P'.

If the total cost for reducing a particular amount of emissions in the 'Command Control' scenario is called 'X', then to reduce the same amount of combined pollution in Sweden and Germany, the total abatement cost would be less in the 'Emissions Trading' scenario i. e. (X - Δ 123 - Δ def).

The example above applies not just at the national level: it applies just as well between two companies in different countries, or between two subsidiaries within the same company.

Applying the economic theory

The nature of the pollutant plays a very important role when policy-makers decide which framework should be used to control pollution.

CO₂ acts globally, thus its impact on the environment is generally similar wherever in the globe it is released. So the location of the originator of the emissions does not really matter from an environmental standpoint.

The policy framework should be different for regional pollutants^[6](e. g. SO₂ and NO_X, and also Mercury) because the impact exerted by these pollutants may not be the same in all locations. The same amount of a regional pollutant can exert a very high impact in some locations and a low impact in other locations, so it does actually matter where the pollutant is released. This is known as the 'Hot Spot' problem.

A Lagrange framework is commonly used to determine the least cost of achieving an objective, in this case the total reduction in emissions required in a year. In Calculus of variations, the Euler–Lagrange equation, or Lagrange's equation is a Differential equation whose solutions are the functions In some cases it is possible to use the Lagrange optimization framework to determine the required reductions for each country (based on their MAC) so that the total cost of reduction is minimized. In such a scenario, the Lagrange Multiplier represents the market allowance price (P) of a pollutant, such as the current market allowance price of emissions in Europe^[7] and the USA. In mathematical optimization problems the method of Lagrange multipliers, named after Joseph Louis Lagrange, is a method for finding the extrema of ^[8]

All countries face the market allowance price as existent in the market that day, so they are able to make individual decisions that would maximize their profit while at the same time achieving regulatory compliance. This is also another version of the Equi-Marginal Principle, commonly used in economics to choose the most economically efficient decision. Ordinal utility Theory states that while the Utility of a particular good and service cannot be measured using an objective scale a consumer is capable

Prices versus quantities, and the safety valve

There has been longstanding debate on the relative merits of price versus quantity instruments to achieve emission reductions. ^[9]

• An emission cap and permit trading system is a quantity instrument because it fixes the overall emission level (quantity) and allows the price to vary. One problem with the cap and trade system is the uncertainty of the cost of compliance as the price of a permit is not known in advance and will vary over time according to market conditions.
• In contrast, an emission tax is a price instrument because it fixes the price while the emission level is allowed to vary according to economic activity. A carbon tax is an environmental Tax on emissions of Carbon dioxide and other Greenhouse gases It is an example of a pollution tax. A major drawback of an emission tax is that the environmental outcome (e. g. the amount of emissions) is not guaranteed.

The best choice depends on the sensitivity of the costs of emission reduction, compared to the sensitivity of the benefits (i. e. , climate damages avoided by a reduction) when the level of emission control is varied.

Because there is high uncertainty in the compliance costs of firms, some argue that the optimum choice is the price mechanism.

However, some scientists have warned of a threshold in atmospheric concentrations of carbon dioxide beyond which a run-away warming effect could take place, with a large possibility of causing irreversible damages. Global warming is the increase in the average measured temperature of the If this is a conceivable risk then a quantity instrument could be a better choice because the quantity of emissions may be capped with a higher degree of certainty. However, this may not be true if this risk exists but cannot be attached to a known level of GHG concentration or a known emission pathway. ^[10]

A third option, known as a safety valve, is a hybrid of the price and quantity instruments. The system is essentially an emission cap and tradeable permit system but the maximum (or minimum) permit price is capped. Emitters have the choice of either obtaining permits in the marketplace or purchasing them from the government at a specified trigger price (which could be adjusted over time). The system is sometimes recommended as a way of overcoming the fundamental disadvantages of both systems by giving governments the flexibility to adjust the system as new information comes to light. It can be shown that by setting the trigger price high enough, or the number of permits low enough, the safety valve can be used to mimic either a pure quantity or pure price mechanism. ^[11]

All three methods are being used as policy instruments to control greenhouse gas emissions: the EU-ETS is a quantity system using the cap and trading system to meet targets set by National Allocation Plans, the UK's Climate Change Levy is a price system using a direct carbon tax, while China uses the CO₂ market price for funding of its Clean Development Mechanism projects, but imposes a safety valve of a minimum price per tonne of CO₂. The European Union Emission Trading System (EU ETS is the largest multi-national Emissions trading scheme in the world and is a major pillar of EU climate policy The Climate Change Levy (CCL is a tax on energy delivered to non-domestic users in the United Kingdom. CDM directs here For other uses see CDM (disambiguation. The Clean Development Mechanism ( CDM) is an arrangement under the

Trading systems

Kyoto Protocol

The Kyoto Protocol is a 1997 international treaty which came into force in 2005, which binds most developed nations to a cap and trade system for the six major greenhouse gases. The Kyoto Protocol is a protocol to the international Framework Convention on Climate Change with the objective of reducing Greenhouse gases in an effort Greenhouse gases are gaseous constituents of the atmosphere bothnatural and anthropogenic that absorb and emit radiation at specific wavelengths within the spectrum of thermal infrared ^[12] (The United States is the only industrialized nation under Annex I which has not ratified and therefore is not bound by it. Annex I and Annex II Countries and Developing Countries Signatories to the UNFCCC are split into three groups Annex I countries (industrialized countries ) Emission quotas were agreed by each participating country, with the intention of reducing their overall emissions by 5. 2% of their 1990 levels by the end of 2012. Under the treaty, for the 5-year compliance period from 2008 until 2012,^[13] nations that emit less than their quota will be able to sell emissions credits to nations that exceed their quota. Emissions trading --> This article deals with carbon credits for international trading and the scams associated with it

It is also possible for developed countries within the trading scheme to sponsor carbon projects that provide a reduction in greenhouse gas emissions in other countries, as a way of generating tradeable carbon credits. Emissions trading -->A carbon project refers to a business initiative that receives funding because of the cut the emission of Greenhouse Emissions trading --> This article deals with carbon credits for international trading and the scams associated with it The Protocol allows this through Clean Development Mechanism (CDM) and Joint Implementation (JI) projects, in order to provide flexible mechanisms to aid regulated entities in meeting their compliance with their caps. CDM directs here For other uses see CDM (disambiguation. The Clean Development Mechanism ( CDM) is an arrangement under the Joint implementation ( JI) is one of three Flexibility mechanisms set forth in the Kyoto Protocol to help countries with binding Greenhouse gas emissions The UNFCCC validates all CDM projects to ensure they create genuine additional savings and that there is no leakage. Carbon leakage occurs when there is an increase in Carbon dioxide emissions in one country as a result of an emissions reduction by a second country with a strict climate policy

The Intergovernmental Panel on Climate Change has projected that the financial effect of compliance through trading within the Kyoto commitment period will be 'limited' at between 0. 1-1. 1% of GDP among trading countries. ^[14] This compares with an estimate in the Stern report which placed the costs of doing nothing at five to 20 times higher. The Stern Review on the Economics of Climate Change is a 700-page report released on October 30, 2006 by economist Lord Stern of Brentford for the ^[15]

Australia

On 4 June 2007, Prime Minister John Howard announced a Australian Carbon Trading Scheme to be introduced by 2012, but opposition parties called the plan "too little, too late. See also Howard Government John Winston Howard AC (born 26 July 1939 was the 25th Prime Minister of Australia from 11 March "^[16] On 24 November 2007 Howard's party lost a general election, and he was succeeded as prime minister by Kevin Rudd, who promised to introduce a cap-and-trade system by 2010. Kevin Michael Rudd (born 21 September 1957 is the 26th and current Prime Minister of Australia and federal leader of the Centre-left Australian Labor The Garnaut Climate Change Review has commented on the mechanics desirable for an emissions trading scheme in its interim report of the Garnaut Review which was released on 21 February 2008. The Garnaut Climate Change Review was a study by Professor Ross Garnaut, commissioned by Prime Minister of Australia, Kevin Rudd and by the Australian

The New South Wales (NSW) state government has set up the NSW Greenhouse Gas Abatement Scheme to reduce emissions requiring electricity generators and large consumers to purchase NSW Greenhouse Abatement Certificates (NGACs) to offset a fraction of their GHG emissions. This has prompted the rollout of free energy-efficient compact fluorescent lightbulbs and other energy-efficiency measures, funded by the credits. This scheme has been criticised by the Centre for Energy and Environmental Markets of the UNSW (CEEM) because of its reliance upon offsets. ^[17]

European Union

Main article: European Union Emission Trading Scheme

The European Union Emission Trading Scheme (or EU ETS) is the largest multi-national, greenhouse gas emissions trading scheme in the world and was created in conjunction with the Kyoto Protocol. The European Union Emission Trading System (EU ETS is the largest multi-national Emissions trading scheme in the world and is a major pillar of EU climate policy The Kyoto Protocol is a protocol to the international Framework Convention on Climate Change with the objective of reducing Greenhouse gases in an effort It is currently the world's only mandatory carbon trading program.

After voluntary trials in the UK and Denmark, Phase I commenced operation in January 2005 with all 15 (now 25 of the 27) member states of the European Union participating. The UK Emissions Trading Scheme was a voluntary Emissions trading system created as a pilot prior to the mandatory European Union Emissions Trading Scheme. The European Union ( EU) is a political and economic union of twenty-seven member states, located primarily in ^[18]The program caps the amount of carbon dioxide that can be emitted from large installations, such as power plants and carbon intensive factories and covers almost half of the EU's Carbon Dioxide emissions. ^[19] Phase I permits participants to trade amongst themselves and in validated credits from the developing world through Kyoto's Clean Development Mechanism. CDM directs here For other uses see CDM (disambiguation. The Clean Development Mechanism ( CDM) is an arrangement under the

Whilst the first phase (2005 - 2007) has received much criticism due to oversupply of allowances and the distribution method of allowances (via grandfathering rather than auctioning), Phase II links the ETS to other countries participating in the Kyoto trading system. The European Commission has been tough on Member States' Plans for Phase II, dismissing many of them as being too loose again. ^[20] In addition, the first phase has established a strong carbon market. Compliance was high in 2006, increasing confidence in the scheme, although the value of allowances dropped when the national caps were met.

All EU member states have ratified the Kyoto Protocol, and so the second phase of the EU ETS has been designed to support the Kyoto mechanisms and compliance period. Thus any organisation trading through the ETS should also meet the international trading obligations under Kyoto.

New Zealand

As of May 2008 the New Zealand Government has a bill for emissions trading schemes before a select committee. New Zealand is an Island country in the south-western Pacific Ocean comprising two main landmasses (the North Island and the South Island Various reports by a range of groups support the scheme but differ in opinion as to how it should be implemented. ^[21]

United States

An early example of an emission trading system has been the SO₂ trading system under the framework of the Acid Rain Program of the 1990 Clean Air Act in the U. The Acid Rain Program is a market-based initiative taken by the United States Environmental Protection Agency in an effort to reduce overall atmospheric levels of Sulfur The 1990 Clean Air Act is a piece of United States environmental policy relating to the reduction of Smog and Air pollution. S. Under the program, which is essentially a cap-and-trade emissions trading system, SO₂ emissions are expected to be reduced by 50 percent from 1980 to 2010. Some experts argue that the "cap and trade" system of SO₂ emissions reduction has reduced the cost of controlling acid rain by as much as 80 percent versus source-by-source reduction.

In 1997, the State of Illinois adopted a trading program for volatile organic compounds in most of the Chicago area, called the Emissions Reduction Market System. The State of Illinois ( roughly ill-i-NOY is a state of the United States of America, the 21st to be admitted to the Union. This article describes a highly specialized aspect of its subject in the "Terminology and legal definitions" section ^[22] Beginning in 2000, over 100 major sources of pollution in eight Illinois counties began trading pollution credits.

In 2003, New York State proposed and attained commitments from nine Northeast states to form a cap and trade carbon dioxide emissions program for power generators, called the Regional Greenhouse Gas Initiative (RGGI). New York ( is a state in the Mid-Atlantic and Northeastern regions of the United States and is the nation's third most populous The Northeast is a region of the United States. As defined by the U Carbon dioxide ( Chemical formula:) is a Chemical compound composed of two Oxygen Atoms covalently bonded to a single Regional Greenhouse Gas Initiative ( RGGI, or ReGGIe) is a regional initiative by states in the Northeastern United States region to reduce Greenhouse This program is due to launch on January 1, 2009 with the aim to reduce the carbon "budget" of each state's electricity generation sector to 10 percent below their 2009 allowances by 2018. New Year See also New Year The Ancient Romans began their consular year on January 1st since 153 BC This article is about the year For the film see 2009 Lost Memories. ^[23]

Also in 2003, U. S. corporations were able to trade CO₂ emission allowances on the Chicago Climate Exchange under a voluntary scheme. Chicago Climate Exchange (CCX is North America ’s only voluntary legally binding Greenhouse gas (GHG reduction and trading system for emission sources In August 2007, the Exchange announced a mechanism to create emission offsets for projects within the United States that cleanly destroy ozone-depleting substances. OZONE is an object oriented Operating system written in the C programming language. ^[24]

In 2007, the California Legislature passed the California Global Warming Solutions Act, AB-32, which was signed into law by Governor Arnold Schwarzenegger. The California State Legislature is the state legislature of the U Arnold Alois Schwarzenegger ( German ˌaɐnɔlt aloʏs ˈʃvaɐtsənɛɡɐ born July 30 1947 is an Austrian American Bodybuilder, Actor Thus far, flexible mechanisms in the form of project based offsets have been suggested for five main project types. A carbon project would create offsets by showing that it has reduced carbon dioxide and equivalent gases. Emissions trading -->A carbon project refers to a business initiative that receives funding because of the cut the emission of Greenhouse The project types include: manure management, forestry, building energy, SF6, and landfill gas capture. California is also one of seven states and three Canadian province that have joined together to create the Western Climate Initiative, which has recommended the creation of a regional greenhouse gas control and offset trading environment. The Western Climate Initiative or WCI is an initiative&mdashstarted by states and provinces along the western rim of North America &mdashto combat Climate change ^[25]

Renewable energy certificates

Main article: Renewable Energy Certificates

Renewable Energy Certificates, or "green tags", are transferable rights for renewable energy within some American states. Renewable Energy Certificates ( RECs) also known as Green tags, Renewable Energy Credits, or Tradable Renewable Certificates ( TRC s Renewable Energy Certificates ( RECs) also known as Green tags, Renewable Energy Credits, or Tradable Renewable Certificates ( TRC s A renewable energy provider gets issued one green tag for each 1,000 KWh of energy it produces. Renewable energy is Energy generated from Natural resources mdashsuch as Sunlight, Wind, Rain, tides and geothermal The energy is sold into the electrical grid, and the certificates can be sold on the open market for additional profit. They are purchased by firms or individuals in order to identify a portion of their energy with renewable sources and are voluntary.

They are typically used like an offsetting scheme or to show corporate responsibility, although their issuance is unregulated, with no national registry to ensure there is no double-counting. A carbon offset is a financial instrument representing a reduction in Greenhouse gas emissions Corporate social responsibility (CSR also called corporate responsibility corporate citizenship responsible business and corporate social opportunity is a concept whereby Organizations However, it is one way that an organization could purchase its energy from a local provider who uses a fossil fuels, but back it with a certificate that supports a specific wind or hydro power project.

The carbon market

This section deals with mandatory carbon emissions trading between nations. For voluntary carbon trading schemes for individuals, see Personal carbon trading and Carbon offset

Main article: Carbon emission trading

Carbon emissions trading is emissions trading specifically for carbon dioxide (calculated in tonnes of carbon dioxide equivalent or tCO₂e) and currently makes up the bulk of emissions trading. Personal carbon trading refers to proposed Emissions trading schemes under which emissions credits are allocated to adult individuals on a (broadly equal Per A carbon offset is a financial instrument representing a reduction in Greenhouse gas emissions Carbon emissions trading is Emissions trading specifically for Carbon dioxide (calculated in tonnes of Carbon dioxide equivalent or tCO2e and Carbon dioxide ( Chemical formula:) is a Chemical compound composed of two Oxygen Atoms covalently bonded to a single Carbon dioxide equivalent ( CDE) and Equivalent carbon dioxide (or CO2e) are two related but distinct measures for describing how much Global It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce carbon emissions and thereby mitigate global warming. The Kyoto Protocol is a protocol to the international Framework Convention on Climate Change with the objective of reducing Greenhouse gases in an effort Mitigation of global warming involves taking actions to reduce Greenhouse gas emissions and to enhance sinks aimed at reducing the extent of Global warming

Market trend

Carbon emissions trading has been steadily increasing in recent years. According to the World Bank's Carbon Finance Unit, 374 million metric tonnes of carbon dioxide equivalent (tCO₂e) were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO₂e)^[26] which was itself a 41% increase relative to 2003 (78 mtCO₂e). ^[27]

In terms of dollars, the World Bank has estimated that the size of the carbon market was 11 billion USD in 2005, 30 billion USD in 2006^[28], and 64 billion in 2007^[29].

Business reaction

With the creation of a market for mandatory trading of carbon dioxide emissions within the Kyoto Protocol, the London financial marketplace has established itself as the center of the carbon finance market, and is expected to have grown into a market valued at $60 billion in 2007. Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information For London as a whole see the main article London. The City of London is a geographically ^[30] The voluntary offset market, by comparison, is projected to grow to about $4bn by 2010. ^[31]

23 multinational corporations came together in the G8 Climate Change Roundtable, a business group formed at the January 2005 World Economic Forum. Multinational corporation ( MNC) or transnational corporation ( TNC) is a Corporation or enterprise that manages Production or delivers The G8 Climate Change Roundtable was formed in January 2005 at the World Economic Forum in Davos The World Economic Forum (WEF is a Geneva -based Non-profit foundation best known for its Annual Meeting in Davos, Switzerland The group included Ford, Toyota, British Airways, BP and Unilever. Ford Motor Company is an American Multinational corporation and the world's fourth largest automaker based on Worldwide vehicle sales, following (pronounced) is a Multinational corporation headquartered in Japan, and is currently the world's largest Automaker. British Airways plc ( is the national Airline and Flag carrier of the United Kingdom and one of the largest in Europe BP plc, previously known as British Petroleum, is the third largest global Energy company, a multinational oil company (" Oil major Unilever is a Multi-national corporation, formed of Anglo - Dutch parentage that owns many of the world's Consumer product brands On 9 June 2005 the Group published a statement stating that there was a need to act on climate change and stressing the importance of market-based solutions. Events 53 - Roman Emperor Nero marries Claudia Octavia 62 - Claudia Octavia commits It called on governments to establish "clear, transparent, and consistent price signals" through "creation of a long-term policy framework" that would include all major producers of greenhouse gases. ^[32] By December 2007 this had grown to encompass 150 global businesses. ^[33]

Business in the UK have come out strongly in support of emissions trading as a key tool to mitigate climate change, supported by Green NGOs. ^[34]

Measuring, reporting, verification (MRV) and enforcement

Meaningful emission reductions within a trading system can only occur if they can be measured at the level of operator or installation and reported to a regulator. For greenhouse gases all trading countries maintain an inventory of emissions at national and installation level; in addition, the trading groups within North America maintain inventories at the state level through The Climate Registry. The Climate Registry is a nonprofit collaboration between North American states provinces territories and Native Soverign Nations to record and track the Greenhouse gas For trading between regions these inventories must be consistent, with equivalent units and measurement techniques.

In some industrial processes emissions can be physically measured by inserting sensors and flowmeters in chimneys and stacks, but many types of activity rely on theoretical calculations for measurement. Depending on local legislation, these measurements may require additional checks and verification by government or third party auditors, prior or post submission to the local regulator. The most general definition of an audit is an evaluation of a person organization system process project or product

Another critical part is enforcement. Coming into force (also called enforcement or enactment) is a term that refers to the process by which Legislation, or part of legislation and ^[35] Without effective MRV and enforcement the value of allowances are diminished. Enforcement can be done using several means, including fines or sanctioning those that have exceeded their allowances. FINE was created in 1998 and is an informal association of the four main Fair Trade networks F Fairtrade Labelling Organizations International Sanctions are usually monetary fines, levied against a party to a Legal action or his/her Attorney, for violating rules of procedure Concerns include the cost of MRV and enforcement and the risk that facilities may be tempted to mislead rather than make real reductions or make up their shortfall by purchasing allowances or offsets from another entity. The net effect of a corrupt reporting system or poorly managed or financed regulator may be a discount on emission costs, and a (hidden) increase in actual emissions.

Criticism

There are critics of the methods, mainly environmental justice NGOs and movements, who see carbon trading as a proliferation of the free market into public spaces and environmental policy-making. ^[36] They level accusations of failures in accounting, dubious science and the destructive impacts of projects upon local peoples and environments as reasons why trading pollution allowances should be avoided. ^[37] In its place they advocate making reductions at the source of pollution and energy policies that are justice-based and community-driven. ^[38] Most of the criticisms have been focused on the carbon market created through investment in Kyoto Mechanisms. Criticism of 'cap and trade' emissions trading has generally been more limited to lack of credibility in the first phase of the EU ETS.

Critics argue that emissions trading does little to solve pollution problems overall, as groups that do not pollute sell their conservation to the highest bidder. Overall reductions would need to come from a sufficient and challenging reduction of allowances available in the system. It is possible that this would occur over time through central regulation, though some environmental groups acted more immediately by buying credits and refusing to use or sell them. This article is for the legal term For regulation of genes see Regulation of gene expression. Environmentalism is a broad philosophy and Social movement centered on a concern for the conservation and improvement of the environment.

Regulatory agencies run the risk of issuing too many emission credits, diluting the effectiveness of regulation, and practically removing the cap. In this case, instead of any net reduction in carbon dioxide emissions, beneficiaries of emissions trading simply do more of the polluting activity. The National Allocation Plans by member governments of the European Union Emission Trading Scheme were criticised for this when it became apparent that actual emissions would be less than the government-issued carbon allowances at the end of Phase I of the scheme. The European Union Emission Trading System (EU ETS is the largest multi-national Emissions trading scheme in the world and is a major pillar of EU climate policy

They have also been criticised for the practice of grandfathering, where polluters are given free allowances by governments, instead of being made to pay for them. A grandfather clause is a term used in US English for an exception that allows an old rule to continue to apply to some existing situations when a new rule will apply to all future situations ^[39] Critics instead advocate for auctioning the credits. The proceeds could be used for research and development of sustainable technology. ^[40]

Critics of carbon trading, such as Carbon Trade Watch, argue that it places disproportionate emphasis on individual lifestyles and carbon footprints, distracting attention from the wider, systemic changes and collective political action that needs to be taken to tackle climate change. Carbon Trade Watch is a project of the Amsterdam-based Transnational Institute. ^[41]

Although many economists advocate carbon trading schemes, some others favor a carbon tax instead. A carbon tax is an environmental Tax on emissions of Carbon dioxide and other Greenhouse gases It is an example of a pollution tax. Possible problems with cap and trade systems include:

• Trading may be a more complicated means of achieving the same objective
• Permit prices may be unstable and therefore unpredictable
• Some cap and trade systems pass the quota rent to business though grandfathering (a certain number of credits are given away for free rather than auctioned)
• Cap and trade systems could become the basis for international trade in the quota rent resulting in very large transfers across frontiers
• Cap and trade systems are seen to generate more corruption than a tax system
• The administration and legal costs of cap and trade systems are higher than with a tax
• A cap and trade system is seen to be impractical at level of individual household emissions

The problem of unstable prices can be resolved, to some degree, by the creation of forward markets in caps. Nevertheless, it is easier to make a tax predictable than the price of a cap.

The Financial Times wrote an article on cap and trade systems that argues that "Carbon markets create a muddle" and ". The Financial Times ( FT) is a British international business Newspaper. . . leave much room for unverifiable manipulation". ^[42]

More recent criticism of emissions trading regarding implementation is that old growth forests (which have slow carbon absorption rates) are being cleared and replaced with fast-growing vegetation, to the detriment of the local communities. ^[43]

See also

• Acid rain
• Air pollution
• AP 42 Compilation of Air Pollutant Emission Factors
• Atmospheric dispersion modeling
• Cap and Share
• Carbon credit
• Carbon finance
• Carbon leakage
• Carbon project
• Carbon Trade Watch
• Coase Theorem
• Demand Responsive Transit Exchange
• Emission standards
• European Union Emission Trading Scheme
• Flexible Mechanisms
• Green certificate
• Green investment scheme
• Green tags
• Greenwash
• Low-carbon economy
• Mobile Emission Reduction Credit (MERC)
• Nutrient trading
• Personal carbon trading
• Pigovian tax
• Regional Clean Air Incentives Market (RECLAIM, an emission trading scheme in California)
• The Sky Trust
• Tradable smoking pollution permits

References

External links

General trading

• The Carbon Folly: Policymakers have settled on 'emissions trading' as their favorite global-warming fix. But it isn't working. by Emily Flynn Vencat for Newseek, March 12, 2007
• Emissions trading: The carbon game news@nature.com Nov. 17, 2004
• Ministers know emissions trading is a red herring and won't work, by George Monbiot, The Guardian, December 19, 2006
• Carbon trading's real colours by Clare Davidson, BBC News, May 16, 2006
• US EPA's Acid Rain Program
• Australasian Emissions Trading Forum
• Illinois' Emissions Reduction Market System
• Texas' Emissions Banking and Trading program
• International Emissions Trading Association
• Carbon Trading: A Critical Conversation on Climate Change, Power and Privatisation edited by Larry Lohmann, the Corner House
• Obscenity of Carbon Trading by Kevin Smith, Carbon Trade Watch, BBC News, Science and Nature

Carbon trading

• International Emissions Trading Association
• http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm The Stern Review on the economics of climate change] - Chapters 14 and 15 have extensive discussions on emission trading schemes and carbon taxes
• Carry On Polluting - Comment and analysis piece by Larry Lohmann, published in New Scientist magazine on the 2nd December 2006
• Ways Forward - Chapter 5 of the book, "Carbon Trading: A Critical Conversation on Climate Change, Privatisation and Power", published October 2006 by Dag Hammarskjöld Foundation, Durban Group for Climate Justice and The Corner House. New Scientist is a weekly International science magazine and website covering recent developments in science and technology for a general English -speaking The Dag Hammarskjöld Foundation was created in 1962 as Sweden’s national memorial to Dag Hammarskjöld, Secretary General of the United Nations from 1953 until his death in The Corner House is a not for profit Company limited by guarantee founded in 1997 in the United Kingdom.
• EU shows carbon trading is not cutting emissions
• Chandler: More Flexibility Needed for Effective Emissions Cap-and-Trade Policy Council on Foreign Relations
• Green Structured Products are likely to Proliferate piece by Edmund Parker and Nicole Purin, Mayer Brown, published in Financial News, 3 December 2007