Geoscience Reference
In-Depth Information
Carbon trading
Many politicians have advocated either a regional or a global carbon trading scheme. The
most successful system of carbon trading is 'cap and trade', whereby politicians set a cap, a
maximum total of pollution allowed, and a trading system is then set up so that different in-
dustries can trade credits. It is acknowledged that the various industries can clean up at
varying rates and costs, and this trading system allows the most cost-effective approach to
be found. This type of system has already been used in US emissions trading to reduce sul-
phur dioxide and nitrous oxides, the primary components of acid rain, and it has been
highly successful. The Clean Air Act of 1990 required electrical utilities to lower their
emissions of these pollutants by 8.5 million tonnes compared with 1980 levels. Initial es-
timates in 1989 suggested it would cost $7.4 billion; a report in 1998 based on actual com-
pliance data suggested it had cost less than $1 billion.
The EU's ETS to reduce GHGs has been successful. The EU's ETS covers more than
11,000 installations with a net energy use of 20 megawatts and includes electricity genera-
tion, ferrous metal production, cement production, refineries, pulp, paper, and glass manu-
facturing. The ETS covers 31 countries, which include all 28 EU member states plus Ice-
land, Norway, and Liechtenstein. The ETS covers half the EU's carbon dioxide emissions
and 40 per cent of its total GHG emissions. Under the 'cap and trade' principle, a cap is set
on the total amount of GHGs that can be emitted by installations in each country. 'Allow-
ances' for emissions are then auctioned off or allocated for free, and can subsequently be
traded. Installations must monitor and report their carbon dioxide emissions, ensuring they
hand in enough allowances to the authorities to cover their emissions. If emission exceeds
what is permitted by its allowances, an installation must purchase allowances from others.
Conversely, if an installation has performed well at reducing its emissions, it can sell its
leftover credits. This allows the system to find the most cost-effective ways of reducing
emissions without significant government intervention. The scheme has been divided into a
number of 'trading periods'. The first ETS trading period lasted three years, from January
2005 to December 2007. The second trading period ran from January 2008 until December
2012, coinciding with the first commitment period of the Kyoto Protocol. The third trading
period began in January 2013 and will last until December 2020. Compared to 2005, when
the EU's ETS was first implemented, the proposed caps for 2020 represents a 21 per cent
reduction of GHGs.
Controversially, the ETS tried in 2012 to extend its carbon market to include international
aviation emissions. It stipulated that only aircraft not included in another carbon trading
