Geography Reference
In-Depth Information
5.7.6
'Cap and Trade' System of Emission Reductions
This avoids the command and control approach by governments in favour of a more
flexible system to reduce pollution. It begins by governments putting a legal limit,
or cap, on the size of emissions from industrial plants or a region, calculated from
some base year, and then allocating permits or allowances to companies for various
levels of emissions. The permits may be allocated for free in the first instance just
to start the scheme off, but more usually they have to be bought but can be traded
through a market system. Companies who reduce their emissions can sell their per-
mits for their defined higher level to those who exceed their cap. In addition, off-
sets to increase emissions above the cap may be obtained by some project, such as
planting as many trees in the tropics as are considered to be the equivalent of the
extra gases emitted. Also the numbers of permits are usually reduced through time,
to encourage companies to reduce emissions by investing in equipment to lower
their emissions, or companies may buy extra permits from those who have spare
capacity. Companies have to pay compensation to the government for exceeding
their limits.
The obvious problem with the approach is that if the cost of the permits is too
low then there is little pressure for reducing emission levels, while offsets have to
be monitored carefully to ensure that compliance is being achieved. In addition,
lower standards or permit costs in one country could give them comparative advan-
tages. One of the most successful examples of this system to date was implemented
by the United States Environmental Protection Agency (EPA) under the Acid Rain
Programme of the 1990 Clean Air Act that applied to the industrial north-east and
mid-west of the country. This created substantial drops in S02 and N02 emissions,
and within a decade of the beginning of the programme the numbers of acidic lakes
dropped by a quarter to a third. In terms of the consequences for humans it is esti-
mated that annual health care benefits of between $ 85-100 billion will result by
2015 from the reduction in polluted hazy air, and with 20-50,000 fewer premature
deaths a year, largely from respiratory problems (EPA 2009 , 2003 ).
A more extensive cap and trade, the biggest in the world was implemented in
the EU to reduce a basket of six greenhouse gas emissions in the EU through the
European Trading Scheme (ETS). By 2012 it covered over 11,000 power stations
and large plants in 31 countries and with plans to extend the system to airlines in
2014. Initially the permits were given out free to introduce the scheme, but through
time more and more are being auctioned for a price, with 40 % allocated in this way
in 2012. The caps are also being reduced through time and in the third phase, start-
ing in 2015, national emission levels will be phased out, to be replaced by standard
measures. Although some critics have argued that the price of the permits is too
low to create major changes, it has been claimed that some progress has already oc-
curred, with companies reducing emission levels through new technologies, result-
ing in carbon emission levels by 2020 that will be 21 % lower than in 1990, which is
better than the reductions agreed to under the Kyoto protocol (EU: Climate 2013 ).
But there is increasing doubt about the viability of European scheme with critics
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