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Emissions Trading

The "carbon market"

* The limits on greenhouse-gas emissions set by the Kyoto Protocol are a way of assigning monetary value to the earth's shared atmosphere -- something that has been missing up to now. Nations that have contributed the most to global warming have tended to benefit directly in terms of greater business profits and higher standards of living, while they have not been held proportionately accountable for the damages caused by their emissions. The negative effects of climate change will be felt all over the world, and actually the consequences are expected to be most severe in least-developed nations which have produced few emissions.

* The Kyoto Protocol sets limits on total emissions by the world's major economies, a prescribed number of "emission units." Individual industrialized countries will have mandatory emissions targets they must meet. . . but it is understood that some will do better than expected, coming in under their limits, while others will exceed them.

* The Protocol allows countries that have emissions units to spare -- emissions permitted them but not "used" -- to sell this excess capacity to countries that are over their targets. This so-called "carbon market" -- so-named because carbon dioxide is the most widely produced greenhouse gas, and because emissions of other greenhouse gases will be recorded and counted in terms of their "carbon dioxide equivalents" -- is both flexible and realistic. Countries not meeting their commitments will be able to "buy" compliance. . . but the price may be steep. The higher the cost, the more pressure they will feel to use energy more efficiently and to research and promote the development of alternative sources of energy that have low or no emissions.

* A global "stock market" where emissions units are bought and sold is simple in concept -- but in practice the Protocol's emissions-trading system has been complicated to set up. The details, weren't specified in the Protocol, and so additional negotiations were held to hammer them out. These rules were among the workaday specifics included in the 2001 "Marrakesh Accords." The problems are clear: countries' actual emissions have to be monitored and guaranteed to be what they are reported to be; and precise records have to be kept of the trades carried out. Accordingly, "registries"-- like bank accounts of a nation's emissions units -- are being set up, along with "accounting procedures," an "international transactions log," and "expert review teams" to police compliance.

* More than actual emissions units will be involved in trades and sales. Countries will get credit for reducing greenhouse-gas totals by planting or expanding forests ("removal units"); for carrying out "joint implementation projects" with other developed countries, usually countries with "transition economies"; and for projects under the Protocol's Clean Development Mechanism, which involves funding activities to reduce emissions by developing nations. Credits earned this way may be bought and sold in the emissions market or "banked" for future use.


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Other Relevant Chapters

A summary of the Kyoto Protocol more >>

Clean Development Mechanism more >>

Joint Implementation more >>

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Emissions Trading


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