Carbon Credits and Global Emissions Trading: A Viable Concept for the Future?

Purpose of this paper will hence be to analyse the current state of emissions trading development and assess the prospects of a universal worldwide emissions trading scheme. It describes the increase in average temperatures of the oceans and near-surface air since the mid-twentieth century and the projected continuation of that phenomenon. In its Fourth Assessment Report, the IPCC concludes that a single technology or sector will neither be entirely responsible nor sufficient for the mitigation of future warming. As indicated earlier, the detailed causes of global warming remain contested and a field of ongoing research.

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The prevailing scientific consensus is however, that an increase in atmospheric greenhouse gases caused by human activity is predominantly responsible for the temperature increase. In line with this, the IPCC contends that most of the observed increases in global average temperatures since the mid-twentieth century are very likely due to an increase in anthropogenic i.

According to the IPCC , the major part of this growth in greenhouse gas emissions stems from energy supply, transport and industry. The theories about the exact chemical and physical processes involved in the phenomenon of global warming are manifold and some of them of enormous complexity. One relatively easy to understand construct which is commonly used to explain global warming is termed the greenhouse effect. In simple terms, the greenhouse effect can be described like the following:.

The Earth receives energy from the sun in form of radiation. Most of this radiation is in visible wavelengths or infrared wavelengths near the visible range. Thirty percent of the incoming solar radiation is reflected back to space in form of infrared radiation. The remaining seventy percent are absorbed, warming the land, atmosphere and oceans.

In order for the climate to remain stable the absorbed solar energy must be very closely balanced by energy radiated back to space in infrared wavelengths. One can hence think of the Earth's temperature as being determined by the infrared flux needed to balance the absorbed solar flux. The visible solar radiation mostly heats the surface, not the atmosphere, whereas most of the infrared radiation escaping to space is emitted from the upper atmosphere, not the surface.

The infrared photons emitted by the surface are mostly absorbed in the atmosphere by greenhouse gases and clouds and do not escape directly to space. The upward infrared flux emitted by the surface therefore has to balance not only the absorbed solar flux but also the downward infrared flux emitted by the atmosphere. The surface temperature will rise until it generates thermal radiation equivalent to the sum of the incoming solar and infrared radiation. With an increase of greenhouse gases in the atmosphere global warming occurs, because these gases can absorb more energy and hence emit more infrared radiation down towards the surface.

Consequently, the temperature of the surface rises, as does the entire atmosphere. One of the most pronounced feedback loops involved in the greenhouse effect is related to the evaporation of water. Warming through additional greenhouse gases such as CO2 will cause more water to evaporate into the atmosphere.

Since water vapour acts as a greenhouse gas itself, the atmosphere warms further which in turn causes more water vapour to evaporate. This positive feedback loop continues until it is stopped by other processes. The result is a much larger greenhouse effect than one that would occur based on CO2 alone.

Observational evidence from all continents and most oceans shows that many natural systems are being affected by regional climate changes in form of temperature increases. Although it is difficult to connect specific weather events to global warming, the IPCC concludes that an increase in global temperatures contributes to broad changes such as glacial retreat, Arctic shrinkage, and a worldwide sea level rise. Changes in rainfall patterns are also likely to be related to global climate change and can result in flooding and drought.

There may also be changes in frequency and intensity of extreme weather events such as hurricanes, typhoons and other tropical storms. These changes are then highly probable to lead to species extinctions way up into high levels of the food web. Even more pressing than these environmental effects of global warming, are perhaps the direct human and social costs related to the changes in climate and weather patterns. Among the human and social costs likely to occur relative to global warming and changing weather patterns are, to begin with, variations in agricultural yields.

According to the United Nations Environment Programme UNEP developing countries, most of which are highly dependent on agriculture, will thus be harmed most by such changes. That poor countries suffer most from the effects of global warming is especially perturbing in light of the fact that their actual emissions have been small compared to those of the developed world. A further projected consequence to occur by is that people living in coastal regions will experience floods every year due to sea level rise.

The seven year CCX cap and trade program claimed to have successfully provided cost-effectiveness and market-based flexibility for emissions trading. Economist Craig Mellow wrote in May 78 Twenty three multinational corporations came together in the G8 Climate Change Roundtable , a business group formed at the January World Economic Forum. On 9 June , the Group published a statement stating that there was a need to act on climate change and stressing the importance of market-based solutions. It called on governments to establish "clear, transparent, and consistent price signals" through "creation of a long-term policy framework" that would include all major producers of greenhouse gases.

Business in the UK have come out strongly in support of emissions trading as a key tool to mitigate climate change, supported by Green NGOs. There are examples of individuals and organisations purchasing tradable emission permits and 'retiring' cancelling them so they cannot be used by emitters to authorise their emissions. This makes the emissions 'cap' lower and therefore further reduces emissions. In , the National Healthy Air License Exchange was established to pool donations for buying and retiring sulfur allowances under the USA sulfur allowance trading program.

The British organization "Climakind" accepts donations and uses them to buy and cancel European Allowances, the carbon credits traded in the European Union Emission Trading System. It is argued that this removes the credits from the carbon market so they cannot be used to allow the emission of carbon and that this reduces the 'cap' on emissions by reducing the number of credits available to emitters. The British organisation Sandbag promotes cancelling carbon credits in order to lower emissions trading caps.

Critics of carbon trading, such as Carbon Trade Watch , argue that it places disproportionate emphasis on individual lifestyles and carbon footprints, distracting attention from the wider, systemic changes and collective political action that needs to be taken to tackle climate change. For instance, small cuts may often be achieved cheaply through investment in making a technology more efficient, where larger cuts would require scrapping the technology and using a different one.

They also argue that emissions trading is undermining alternative approaches to pollution control [ clarification needed ] with which it does not combine well, and so the overall effect it is having is to actually stall significant change to less polluting technologies. How it works and why it is controversial" [42] [ full citation needed ] which compiles many of the arguments against carbon trading. The Financial Times published an article about cap-and-trade systems which argued that "Carbon markets create a muddle" and " In China some companies started artificial production of greenhouse gases with sole purpose of their recycling and gaining carbon credits.

Similar practices happened in India.

Earned credit were then sold to companies in US and Europe. Recent proposals for alternative schemes to avoid the problems of cap-and-trade schemes include Cap and Share , [ clarification needed ] which was being actively considered by the Irish Parliament in May , and the Sky Trust schemes. Carbon trading has been criticised as a form of colonialism , in which rich countries maintain their levels of consumption while getting credit for carbon savings in inefficient industrial projects.

The Kyoto Protocol's Clean Development Mechanism has been criticised for not promoting enough sustainable development. Another criticism is the claimed possibility of non-existent emission reductions being recorded under the Kyoto Protocol due to the surplus of allowances that some countries possess. For example, Russia had a surplus of allowances due to its economic collapse following the end of the Soviet Union. Rather, it would have been simply be a redistribution of emissions allowances. In practice, Kyoto Parties have as yet chosen not to buy these surplus allowances. Corporate and governmental Carbon emission trading schemes a trading system devised by economists to reduce CO 2 emissions, the goal being to reduce global warming have been modified in ways that have been attributed to permitting money laundering to take place.

From Wikipedia, the free encyclopedia. For the market in the Philippines, see Carbon Market. This article's Criticism or Controversy section may compromise the article's neutral point of view of the subject. Please integrate the section's contents into the article as a whole, or rewrite the material. Archived from the original on Vulnerability to Climate Change and Reasons for Concern: Impacts, Adaptation and Vulnerability. Intertemporal Equity, Discounting, and Economic Efficiency.

Economic and Social Dimensions of Climate Change. Joseph Stiglitz's web page at Colombia University. Archived from the original PDF on Analysis of Distributional Incidence: State of the Art. Mitigation by Countries and Sectors: Equity and Cost-effectiveness Considerations. The Economic and Social Review. Policies, Measures, and Instruments. Assuring compliance with an emissions trading scheme requires measuring, reporting and verification MRV.

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These measurements are reported to a regulator. For greenhouse gases, all trading countries maintain an inventory of emissions at national and installation level; in addition, trading groups within North America maintain inventories at the state level through The Climate Registry. For trading between regions, these inventories must be consistent, with equivalent units and measurement techniques. In some industrial processes, emissions can be physically measured by inserting sensors and flowmeters in chimneys and stacks, but many types of activity rely on theoretical calculations instead of measurement.

Depending on local legislation, measurements may require additional checks and verification by government or third party auditors , prior or post submission to the local regulator. A firm might buy a small amount of allowances but emit a much larger amount of pollution. This creates a troublesome moral hazard problem.

This problem may be solved by a centralized regulator. The regulator should perform Measuring, Reporting and Verification MRV of the actual pollution levels, and enforce the allowances. Enforcement methods include fines and sanctions for polluters that have exceeded their allowances. Concerns include the cost of MRV and enforcement, and the risk that facilities may lie about actual emissions. The net effect of a corrupt reporting system or poorly managed or financed regulator may be a discount on emission costs, and a hidden increase in actual emissions.

Based on institutional and enforcement considerations, Kruger et al. An alternative to centralized regulation is distributed regulation, in which the firms themselves are induced to inspect the other firms and report their misbehavior. It is possible to implement such systems in subgame perfect equilibrium. Moore and Repullo [] present an implementation with unbounded fines; Kahana and Mealem and Nitzan [] present an implementation with bounded fines. Their work extends the work of Duggan and Roberts [] by adding a second component which takes care of the moral hazard.

For example, in the popular science magazine New Scientist , Lohmann argued that trading pollution allowances should be avoided as a climate stabilization policy for several reasons. First, climate change requires more radical changes than previous pollution trading schemes such as the US SO 2 market. It requires reorganizing society and technology to "leave most remaining fossil fuels safely underground".

Carbon trading schemes have tended to reward the heaviest polluters with 'windfall profits' when they are granted enough carbon credits to match historic production. Expensive long-term structural changes will not be made if there are cheaper sources of carbon credits which are often available from less developed countries, where they may be generated by local polluters at the expense of local communities.

Research by Preston Teeter and Jorgen Sandberg has shown that the flexibility, and thus complexity, inherent in cap and trade schemes has resulted in a great deal of policy uncertainty surrounding these schemes.

Does carbon trading really work?

As a result of this uncertainty, organizations have little incentive to innovate and comply, resulting in an ongoing battle of stakeholder contestation for the past two decades. Lohmann b supported conventional regulation, green taxes, and energy policies that are "justice-based" and "community-driven. Annie Leonard 's documentary The Story of Cap and Trade criticized carbon emissions trading for the free permits to major polluters giving them unjust advantages, cheating in connection with carbon offsets , and as a distraction from the search for other solutions. Forest campaigner Jutta Kill of European environmental group FERN argued that offsets for emission reductions were not substitute for actual cuts in emissions.

Kill stated that "[carbon] in trees is temporary: Trees can easily release carbon into the atmosphere through fire, disease, climatic changes, natural decay and timber harvesting. Regulatory agencies run the risk of issuing too many emission credits, which can result in a very low price on emission permits. On the other hand, issuing too few permits can result in an excessively high permit price. However, a price-ceiling safety value removes the certainty of a particular quantity limit of emissions. If polluters receive emission permits for free "grandfathering" , this may be a reason for them not to cut their emissions because if they do they will receive fewer permits in the future.

This perverse incentive can be alleviated if permits are auctioned, i. Revenues from auctioning go to the government and can be used for development of sustainable technology [] or to cut distortionary taxes, thus improving the efficiency of the overall cap policy.



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On the other hand, allocating permits can be used as a measure to protect domestic firms who are internationally exposed to competition. This argument in favor of allocation of permits has been used in the EU ETS, where industries that have been judged to be internationally exposed, e. This method of distribution may be combined with other forms of allowance distribution. The Bill was found to protect low-income consumers, but it was recommended that the Bill be made more efficient by reducing welfare provisions for corporations, and more resources be made available for consumer relief.

Distinct cap-and-trade systems can be linked together through the mutual or unilateral recognition of emissions allowances for compliance. Linking systems creates a larger carbon market, which can reduce overall compliance costs, increase market liquidity and generate a more stable carbon market.

In , the U. In , the provinces of Ontario and Manitoba agreed to join the linked system between Quebec and California. The International Carbon Action Partnership brings together regional, national and sub-national governments and public authorities from around the world to discuss important issues in the design of emissions trading schemes ETS and the way forward to a global carbon market.

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Economy-wide pricing of carbon is the centre piece of any policy designed to reduce emissions at the lowest possible costs. Preferential trading area Free trade area Customs union Single market Economic union Monetary union Fiscal union Customs and monetary union Economic and monetary union. Imports Exports Tariffs Largest consumer markets Leading trade partners.

Emissions trading

Comparative advantage Competitive advantage Heckscher—Ohlin model New trade theory Economic geography Intra-industry trade Gravity model of trade Ricardian trade theories Balassa—Samuelson effect Linder hypothesis Leontief paradox Lerner symmetry theorem Terms of trade. Emission trading or carbon tax under consideration.

European Union Emission Trading Scheme. Climate change in the United States. This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. September Learn how and when to remove this template message. Global warming portal Ecology portal Environment portal. Resources for the Future. British Journal of Management. Retrieved 25 Oct Center for Climate and Energy Solutions. Archived from the original PDF on Retrieved 27 October S Environment Protection Agency.

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Carbon emission trading - Wikipedia

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The ultimate climate change FAQ

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