February 15, 2010
Carbon markets have suffered a number of criticisms since they were first introduced–ranging from being a haven for white collar crime to a sponsor of environmental harm in Third World communities. With global leaders failing to reach an agreement to extend the Kyoto Protocol at the December meeting in Copenhagen, many people are asking if carbon markets will survive at all [PDF] (also see here [PDF] and here [PDF] ).
To help understand the current and future state of the international market for carbon credits, we are reproducing an excellent report from Reuters here.
Carbon trading schemes around the world
Companies and governments are turning to emissions trading as a weapon to fight climate change and join a carbon market worth $136 billion last year.
Carbon markets trade rights to emit greenhouse gases such as carbon dioxide and are often seen as more politically acceptable than carbon taxes, though some governments struggle to pass enabling laws.
Under cap-and-trade schemes, companies or countries face a carbon limit. If they exceed the limit they can buy allowances from others.
They can also buy carbon offsets from outside projects which avoid greenhouse gas emissions, often from developing countries.
Following is a list of established and proposed schemes:
1. Kyoto Protocol: Launched 2005.
Mandatory for 37 developed nations, excluding the United States which never ratified the pact.
Covers: All six main greenhouse gases.
Target: 5 percent average reduction in 1990 emissions during 2008-2012 first phase.
How it works: Rich countries cut greenhouse gases at home or buy emissions rights from each other — if one country stays within its target it can sell the difference to another emitting too much. Alternatively, they can buy carbon offsets from projects in developing countries under Kyoto’s clean development mechanism.
The present round of Kyoto expires in 2012 and it remains unclear if nations will commit to a second and tougher commitment period from 2013 to cut emissions after December’s Copenhagen climate talks failed to seal a new legally binding deal.
2. European Union Emissions Trading Scheme:
Mandatory for all 27 EU member states.
Covers: Nearly half of all EU carbon emissions
Target: 21 percent cut below 2005 levels by 2020
How it works: Member states allocate a quota of carbon emissions allowances to 11,000 industrial installations. Companies get most permits free now but many electricity generators will have to pay for all these from 2013.
Companies can buy carbon offsets from developing countries if that works out cheaper than cutting their own emissions.
3. New Zealand emissions trading scheme
Launch: July 1, 2010
Covers: Forestry started first. From July 1, 2010, electricity, industrial process emissions and transport pollution also included. Agriculture to start Jan 1, 2015. About half of New Zealand’s emissions come from agriculture, mostly methane.
Target: The government has pledged to cut greenhouse gas emissions between 10 and 20 percent by 2020 on 1990 levels.
How it works: Emissions units will be allocated based on an average of production across each industry. [ID:nSP124540]
From July 1, 2010, to January 1, 2013, emitters have the option of paying a fixed price of NZ$25 ($18.25) per tonne of carbon, and will only have to surrender 1 unit for every 2 units of emissions. Such assistance will be gradually phased out.
4. Northeast U.S. states’ Regional Greenhouse Gas Initiative (RGGI) cap and trade scheme.
Launched: January 2009
Covers: carbon from power plants in 10 northeast states. Allows offsets from five different types of clean energy projects including capturing methane from landfills and livestock manure.
Target: 10 percent cut below 2009 levels by 2018
5. Japan: Tokyo metropolitan trading scheme
Launch: April 2010
How it works: Tokyo city proper will set emission limits for 1,400 large factories and offices to meet by using technology like solar panels and advanced fuel-saving devices starting in April. [ID:nTOE60Q09J]
Beating the targets earns credits that can be sold locally to those that fall short. Scheme is seen as a step towards national emissions trading.
Government is drafting a climate bill to be submitted to parliament by March with possible start of emissions trading next year, though fierce industry opposition could derail that timing. [ID:nTOE617082]
1. Australia: Carbon Pollution Reduction Scheme
Launch: Planned for mid-2011 but stalled in parliament. Laws twice revised last year but also twice rejected by Senate. Currently before parliament for a third time.
Covers: 75 pct of all Australia’s greenhouse gas emissions Target: Australia’s national target is to cut greenhouse gases by 5-25 percent below 2000 levels by 2020, depending on what other countries commit to. [ID:nSGE61101L]
How it will work: Australia will auction most of its permits. The scheme plans to curb competitiveness impacts by making permits free for companies that depend on exports, and by having a carbon price cap of A$10 per tonne for the first year.
2. U.S. federal climate change bill [ID:nN28390301]
The Democrat-controlled U.S. House of Representatives narrowly approved in June legislation covering cap-and-trade of carbon emissions but it does not have enough support in the Senate. [ID:nN04139576]
Senators hope to have a compromise bill ready for debate by April, but it is not clear whether that will happen. Some options avoid inclusion of emissions cap-and-trade.
Launch: 2012 under the House version
Target: Cut 17 percent below 2005 levels by 2020
How it would work: Industry would get most allowances for free initially. Companies could offset up to 2 billion tons of their emissions annually by paying for “green” projects. The bill would pre-empt any similar scheme from U.S. states from 2012-17 but leaves them the option to resume trade after that.
3. Western Climate Initiative
Covers: Six greenhouse gases across seven U.S. states and four Canadian provinces. Six other U.S. states, six Mexican states and two other Canadian provinces are observers.
Target: 15 pct cut below 2005 levels by 2020
How it works: Phased introduction from 2012. Initially covers emissions from electricity and parts of industry. Expands to include transport fuels and residential, commercial and industrial fuels not otherwise covered by phase two in 2015. Aim is to cover nearly 90 percent of all greenhouse gas emissions in WCI members.
4. California’s Assembly Bill 32 (AB 32)
Covers: Statewide emissions reduction targets of 1990 levels by 2020, and cutting that by 80 percent by 2050. Covers 85 percent of the state’s emissions. Would also link to the Western Climate Initiative. [ID:nLDE60L0G8]
How it will work: Initially covers electricity generation and imports, as well as emissions from large industrial sources. Phase II from 2015 also covers smaller industrial sources, residential and commercial combustion of natural gas and propane, and transportation fuels.
Target: Meeting the 2020 target would need cuts of around 11 percent from 2008 and almost 30 percent from the projected 2020 level under business as usual.
5. South Korea emission trading scheme
Covers: Not yet decided. Details on how much to cover, how to and where to trade the emission and will be prepared by August in a related bill, which will be submitted to the parliament. Parliament to decide if it will approve the bill by end-Dec.
Target: Government has set a 2020 emissions reduction target of 30 percent below forecast “business as usual” levels. [ID:nSEO204081]
Public institutions started to reduce emissions in line with targets from January. The difference between their actual emissions and targets will be traded online [nTOE5BT063] (Sources: Reuters
California Air Resources Board here.
Western Climate Initiative here.
Categories: Carbon Credit Watch