Reducing Greenhouse Gas Emissions

The Role of Emissions Trading Systems

Completion of phase one of the European Emissions Trading System brings valuable lessons for designing an effective strategy to control global climate change.

With mounting evidence of rapid global warming, few now question the urgent need to control and reduce the world’s production of greenhouse gases. The big question is whether and by what means a rapid reduction can be achieved without major disruption to economic, social and political stability. Can emissions trading systems help?

The Greenhouse Effect

Greenhouse gases like carbon dioxide trap solar radiation within the atmosphere and play a key role in maintaining global temperatures. A stable proportion of greenhouse gases helps to stabilise average temperatures around the world. But an increase in the proportion of these gases will contribute to an increase in temperatures.

After much debate, most scientists now believe that a spiral of increasing greenhouse gases and increasing global temperatures is underway, and that greenhouse gases produced by human activity are largely responsible. A continuation of recent rates of change will have alarming consequences within the lifetime of many of us, with more extreme effects further in the future.

Measures taken so far have had little effect on slowing the changes that are occurring. Indeed, each new piece of evidence seems to show that changes in the natural world are happening faster than previously thought. If the scientific consensus is correct, the need for significant changes in our approach to controlling emissions is becoming increasingly urgent.

Cap and Trade

Emissions trading is an essential component of the Kyoto Protocol, an almost complete global agreement on tackling climate change to which 175 countries are now committed.

The idea of “cap and trade” emissions trading is to put a limit, or cap, on the emissions allowed by each individual emitter within the system; to reduce that cap each year; to monitor each individual’s actual emissions; and to allow emitters to trade their emissions allocations, buying more if they need them, and selling their right to emit if they can adopt technologies and work practices to reduce their emissions below their allowance.

A Price for Emissions

Trading, therefore, creates a price for emissions, measured for example in euros per ton of carbon dioxide. Reducing the overall cap each year applies upward pressure to the price, creating a greater financial pressure to emit less.

The effect of the system is to allow the market to play a key role in allocating among all emitters a steadily decreasing total right to emit greenhouse gases. Supporters believe that harnessing market forces is both fairer and more effective than allowing politicians and bureaucrats to decide how the burden of reducing emissions should be shared.

The EU Emissions Trading System

Of several examples around the world, the European Emissions Trading System is the largest for CO2 emissions. In its first phase from 2005 to 2007, it covered 11,000 installations in 25 countries, responsible for 30 per cent of Europe’s greenhouse gases. Its experience during this trial period provides valuable lessons.

In some respects, the system has worked as intended. It contributes to a growing international carbon emissions market that Oslo-based consultancy Point Carbon estimates will be worth $92 billion in 2008. Early in 2008, an independent Ecofys study concluded that the system has reduced emissions in Europe by about seven percent compared to what they would have been without the system.

But even if this estimated reduction is correct it is far from enough to reduce emissions by 21 percent below 2005 levels by 2020, the EU target which may itself be too modest to meet nature’s challenge.

Setting Emissions Allowances

Among many criticisms, during its first phase, the European ETS was crippled by the over the generous allocation of emissions limits, resulting from fierce lobbying by industries and nations. Therefore the system has not yet created a carbon price that is high and stable enough to influence companies’ investment decisions. After peaking at almost €30 per tonne in 2005 carbon prices collapsed late in 2007, temporarily neutralising the intended pressures to cut emissions.

In its forthcoming second phase, from 2008 to 2012, the European ETS will broaden its scope within Europe, taking in the aviation industry by 2010; set national caps centrally rather than trusting each country to set its own limit; auction emission permits rather than issuing them free of charge; include other greenhouse gases as well as CO2; and open itself to emissions trading with non-EU countries within the framework of the Kyoto Protocol.

Thus the potential effectiveness of the European ETS should increase significantly. But if this potential is to be realised the first requirement is to resist demands for emissions caps above the levels dictated by science. Doing so will go a long way towards determining whether Europe and the world will reduce greenhouse gas emissions enough, and in time. The stakes could hardly be higher.


What is the Kyoto Protocol and Who Does it Apply To?

The Kyoto Protocol was agreed in 1997 in an attempt to curb greenhouse emissions. However, it doesn’t apply to all countries and has been widely criticised.

The Kyoto Protocol is an international agreement which became a legally binding treaty in 2005. It sets specific targets for industrialised nations to reduce carbon emissions by 2012 in an attempt to curb the effects of anthropogenic global warming.

It has been criticised for being both toothless and economically damaging; among the nations not to ratify it was Australia and the U.S (though Australia later backtracked in 2007), while China and India were exempt on account of being considered developing nations at the time the treaty was agreed. However, the Kyoto Protocol’s proponents argue that it is mankind’s best chance at avoiding the worst effects of climate change as a result of human activity.

What is the Kyoto Protocol?

The Kyoto Protocol was born out of the earlier treaty agreed at the 1992 Earth Summit in Rio de Janeiro, known as the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC was the first attempt by industrialised nations to monitor greenhouse emissions and curb carbon pollution. The ultimate goal was to find a way of stabilising levels of atmospheric greenhouse gases at a safe level that would mitigate against the worst effects of global warming.

The UNFCCC encouraged nations to reduce emissions but it was not legally binding; the Kyoto Protocol was the first treaty where formal targets were outlined. Industrialised nations were encouraged but not required to ratify the document; emissions caps applied only to those nations who did so. The overall target amounted to a reduction in carbon emissions of around 5% on 1990 levels taken as a four year average between 2008 and 2012.

Which Countries Signed the Kyoto Protocol?

As of November 2009, 191 states had ratified or otherwise approved the Kyoto Protocol, accounting for 63.7% of Annex I country emissions. Annexe I countries are a group defined by the UNFCCC, including all OECD countries and ‘economies in transition’. A full list of ratifying countries is published on the UNFCCC website.

In order for the Kyoto Protocol to become a legally binding document 55% of Annex I emissions needed to be accounted for by countries ratifying the treaty – a statistic which was achieved on 16th February 2005. As of 2010, the majority of outstanding emissions not covered by the Kyoto Protocol come from the United States, who between 1990 and 2005 accounted for 30% of global cumulative carbon emissions.

Criticism of the Kyoto Protocol

Various criticisms of the Kyoto Protocol have been made, ranging from accusations of inefficiency and inequality to suggestions that it is simply ineffective. One of the treaty’s highest-profile critics is James Hansen, who in 2009 boycotted the UN Climate Change Conference in Copenhagen, labelling it a farce and claiming that the developed world nations were paying lip service to real environmental concerns and simply wanted to continue with ‘business as usual’.

Another major criticism was that caps were only applied to developed nations and that ‘developing’ countries, such as China, India and Brazil, were not included despite the fact that they represent a rapidly growing percentage of global carbon emissions – indeed, China is now the third highest producer of global greenhouse gases (8%) after the US (30%) and the EU (23%).

The Kyoto Protocol is an international treaty designed to curb greenhouse emissions among OECD countries and bring them down to 5% below 1990 levels by 2012. As of November 2009, it has been signed by 191 states and the US is the only major nation-state that has yet to ratify the agreement. It has been roundly criticised on a number of levels yet to date it remains the most important international agreement in the fight against anthropogenic global warming.