The Threat of Climate Change - Energy and Climate: How to Achieve a Successful Energy Transition - page 30

a greenhouse gas (GHG) emission reduction project from another
Kyoto Protocol signatory country.
- The Clean Development Mechanism (CDM) is based on the same
principle as that of the JI mechanism, but in this case, the investments
are made in countries such as China, India and Brazil which are non-
Annex 1 countries.
- The CO 2 Emissions Trading Scheme (ETS) allows for the possibility
of exchanging the CO 2 quotas assigned to companies. At the end of
each period, a companywhose actual CO 2 emissions are greater than
its allowances can purchase the missing allowances from the market.
This is only possible if, similarly, other companies emit less than their
allocation of allowances and are in a position to sell their surplus
allowances.

Of the major industrialised countries, only the USA has not signed the
Kyoto Protocol, since Australia has just signed. A certain number of
American states, including California, have nevertheless adopted a very
similar system.
At the same time, it is quite obvious that some parties will not respect
their Kyoto commitments.
On 1 January 2005, the European Union set up the European Emissions
Trading Scheme, provided for under the terms of the Kyoto Protocol.
Companies which make investments to reduce their CO 2 emissions
may, if their performance is better than the objective set by the govern-
ment, sell emission allowances and thereby pay back their investments.
Stock exchangemechanisms apply in this case: the value of a tonne of CO 2
varies according to supply and demand and according to the volumes
traded. This system will be restricted to Europe (some 12 000 industrial
sites are concerned) for 3 years before being extended internationally in
2008, thereby concerning exchanges not only between companies but
also between countries. The aimof this system, by combining government
intervention (to set reduction objectives and check compliance with com-
mitments) and market mechanisms, is to promote collective and global
control of emissions. The idea is to optimise investment levels, which will
primarily concern the most effective actions in terms of reducing CO 2
emissions, through market regulation either in Europe or in the develop-
ing countries by implementing clean development mechanisms.
After a sharp increase, the value of a tonne of CO 2 dropped to a very low
level due to a surplus of allowances for the first application period. A
readjustment was made in the second application period of the system
(2008-2012), with rates in the region of 20 per tonne of CO 2 .

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