Emissions Trading

emissions trading is a method of controlling harmful carbon emission by creating a system of economic incentives for reduction. Since the creation of the Kyoto Protocol in 1997, where all signatory nations agreed to implement caps on the six major greenhouse gasses and reduce emissions to 1990 levels by 2012, emissions trading has become one of the most popular tools in controlling industrial pollution. Critics argue that it does little to get to the root causes of that pollution and, ultimately, has a negligible impact on global carbon emissions. The process is relatively simple: a regulatory authority sets a limit, or cap on the amount of emissions a company can produce in a year. The company is given a certain number of credits per metric ton of emissions. If that company comes in under the cap, they can keep unused credits and sell or trade them on the open market; if they exceed the cap, they are required to purchase credits from another company with lower emissions.

The most popular form of this system is called cap-and-trade, where a limit is set with an eye toward overall reduction of emissions. Under baseline and credit programs, there is no cap, but companies are required to stay under a baseline level set at a given year. Project-based, or offset credits are programs that reward emitters for implementing changes that reduce emissions well below the regulatory caps.

The largest experiment in emissions trading is the European Union Emission Trading Scheme (EU ETS). All 27 EU member nations are part of the scheme, and participation is mandatory. Each nation is allocated an amount of carbon tonnage relative to their total industrial output: for example, heavily-industrial ized Germany was given an initial cap of 499 metric tons (mt) of carbon emissions, while tiny Malta was allocated 2.9 mt. Individual companies, which are required to report their emissions with the EU ETS, are then allocated credits. Phase I was launched in January 2005. Early reviews are mixed, with many believing that the caps established by the European Union were too lenient and have not resulted in a lowering of emissions.

The United States has utilized cap-and-trade to a limited extent, most notably in the reduction of sulfur dioxide (SO2) emissions, the main pollutant in acid rain. This program, begun under the Clean Air Act of 1990, proved so successful that the European Union used the American model when setting up the ETS. However, the United States is not a signatory to the Kyoto Protocol, and does not have a single, unified program like the ETS. Individual states and regions are creating their own cap-and-trade programs, some of which are showing early success.

Supporters of carbon-emissions trading argue that this is a prime example of free-market environmental-ism that creates a politically and economically viable way to control pollution. Rather than forcing industries to implement often-costly changes in infrastructure, it reduces overall carbon emission, while giving each industry time to develop cleaner alternatives. It also creates a new and potentially lucrative market in carbon-credit trading; giving value to something that was previously just waste. During the EU ETS's first year, 362 million tons of CO2 were traded for €7.2 billion on this new carbon market. Cap-and-trade programs require little investment by regulatory agencies and have been credited with reducing emissions far beyond what was originally expected.

Critics say that cap-and-trade programs represent a capitulation to market forces at the expense of the environment, and ultimately do little to reduce global emission rates. Most schemes give credits to companies freely, rather than auctioning them off, meaning the companies have no investment in the program at the outset. Many programs allocate too many credits at the outset (this is one of the main criticisms of the EU ETS). Cap-and-trade does not encourage polluters to find greener alternatives or invest in upgrades, because it is usually less expensive to purchase credits from other emitters. These critics also believe that the system relies too much on self-monitoring by indus try, and does not have strict fines or punishments for failure to meet regulatory caps. This fosters a sense of business-as-usual that does not address the long-term impact of continued high emissions. They argue that other remedies, such as a carbon tax, would do far more to force compliance with reduction goals.

sEE ALso: Carbon Dioxide; Carbon Emissions; Carbon Permits; Emissions, Baseline; Industrialization; Pollution, Air.

BIBLIoGRApHY. Climate Action Network Europe, www. climnet.org (cited November 2007); International Network for Environmental Compliance and Enforcement, www. inece.org (cited November 2007); Regional Greenhouse Gas Initiative, www.rggi.org (cited November 2007).

Heather K. Michon Independent Scholar

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