Geoscience Reference
In-Depth Information
Annex I nations the flexibility to take a least-cost, global approach to emis-
sions reductions. It also served as an incentive for developing-world coun-
tries to cooperate with Annex I countries' emissions reductions objectives,
by providing the developing world with certain environmentally specific
forms of development aid.
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By far the most important and controversial of the flexibility mech-
anisms built into the Kyoto Protocol was emissions trading, commonly
known as cap and trade. Under an emissions trading system, a central orga-
nization— in this case the United Nations, under the Kyoto Protocol— sets
a limit (a cap) on the total amount of a pollutant that can be emitted. The
organization then allocates standardized credits that give their holders the
right to emit a certain amount of the controlled pollutant. Those cred-
its— carbon credits in this case, representing greenhouse gas emissions
equivalent to a fixed amount of CO
2
— can then be bought and sold as
a commodity in national, regional, and global markets. A company that
holds carbon credits has the option to either reduce its own emissions and
sell the unused credits or to emit at a certain level and use its own credits,
depending on the cost of emissions reductions and the market price of
emissions permits. Under the Kyoto Protocol, these credits remain valid
for a fixed period, such that an overall reduction in the emissions “cap” to
below 1990 emissions levels can be phased in over time.
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Proposed by Eizenstat and the U.S. negotiating team, cap and trade was
a late addition to the Kyoto negotiations that clearly reflected American
interests. The Clinton administration modeled the system after a similar
program that curbed acid rain by limiting sulfur dioxide emissions. The
Grand Policy Experiment, as its proponents dubbed it, was the cornerstone
of the 1990 Clean Air Act passed under the Bush administration, and by
the mid-1990s it had exceeded expectations as a cost-effective, market-
based solution to pollution control.
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Backed by Vice President Al Gore
(formerly a strong proponent of a carbon tax), cap and trade sidestepped
the political quagmire of taxation while also satisfying the second and
third stipulations of the Byrd-Hagel Resolution— that any binding com-
mitment must not harm the American economy and that it must include a
detailed implementation plan with a thorough cost-benefit analysis. Just as
important, cap and trade provided a flexible, market-based alternative to
European proposals for legal mandates and direct regulatory intervention,
steps that conservatives and free-market economists, with a pejorative nod
