What is Emissions Trading?
Under the KYOTO Protocol, nations that exceeded their emissions quota are permitted to buy any ‘spare’ capacity from those nations that reduced their own emissions more than their target. Some poorer nations that have low emissions can gain economic benefit from the more polluting nations. Each nation has an ‘allocated amount’ of the six major greenhouse gases. Aviation was exempted from the system but there is strong pressure to bring it in – the EU is currently working on a scheme. In some states allocations have been divided amongst individual industries or economic sectors.
Under an emissions trading scheme, limits (or caps) are set on the amount of a pollutant (greenhouse gas) that can be emitted. Companies or groups are given credits which represent the right to emit a specific amount. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances. The more firms that need to buy credits, the higher the price of credits becomes — which makes reducing emissions cost-effective in comparison.
Emissions trading is a market-based scheme for environmental improvement that allows parties to buy and sell permits for emissions or credits for reductions in emissions of certain pollutants. Emissions trading allows established emission goals to be met in the most cost-effective way by letting the market determine the lowest-cost pollution abatement opportunities. Under such a scheme, the environmental regulator first determines total acceptable emissions and then divides this total into tradeable units (often called credits or permits). These units are then allocated to scheme participants. Participants that emit pollutants must obtain sufficient tradeable units to compensate for their emissions. Those that reduce emissions may have surplus units that they can sell to others that find emission reduction more expensive or difficult. In suitable cases, trading schemes offer significant advantages over other regulatory approaches, both in certainty of environmental outcome and the pote
It’s cap and trade, for one… It is a government administered scheme where greenhouse gas pollution is reduced by setting limits (the cap) to the emissions of industry sectors and allowing the buying and selling (the trade) of ‘carbon’ permits, or credits. How does that achieve anything? Well, first certain industries, say coal-based electricity generators, are told that for their industry sector only a particular total level of greenhouse gases will be allowed. If the electricity generator produces more it may buy carbon permits from others that pollute below this level. These permits will be priced through auctioning them Or the polluting industry may find it more profitable to implement alternative, clean technology. Or… go out of business. Whatever costs them less. Governments may probably will – apply a schedule where the “cap” on emissions is progressively set lower as alternative, low-emission industries increase. It is thought to be an effective way to lower emissions at the
