Climate Change
Climate Change
Climate Change (or
emission trading) is
an administrative approach used to control pollution by providing economic
incentives for achieving reductions in the emissions of pollutants. It is
sometimes called cap and trade.
A coal power plant in Germany. Due to
Climate Change, coal might become less competitive as a fuel.
A coal power plant in Germany. Due to
Climate Change, coal might become less competitive as a fuel.
A central authority (usually a government or international body) sets a limit or
cap on the amount of a pollutant that can be emitted. Companies or other groups
are issued emission permits and are required to hold an equivalent number of
allowances (or credits) which represent the right to emit a specific amount. The
total amount of allowances and credits cannot exceed the cap, limiting total
emissions to that level. Companies that need to increase their emissions must
buy credits from those who pollute less. The transfer of allowances is referred
to as a trade. In effect, the buyer is paying a charge for polluting, while the
seller is being rewarded for having reduced emissions by more than was needed.
Thus, in theory, those that can easily reduce emissions most cheaply will do so,
achieving the pollution reduction at the lowest possible cost to society.[1]
There are active trading programs in several pollutants. For greenhouse gases
the largest is the European Union Emission Trading Scheme.[2] In the United
States there is a national market to reduce acid rain and several regional
markets in nitrous oxide.[3] Markets for other pollutants tend to be smaller and
more localized.
Carbon trading is sometimes seen as a better approach than a direct carbon tax
or direct regulation. By solely aiming at the cap it avoids the consequences and
compromises that often accompany those other methods. It can be cheaper, and
politically preferable for existing industries because the initial allocation of
allowances is often allocated with a grandfathering provision where rights are
issued in proportion to historical emissions. In addition, most of the money in
the system is spent on environmental activities, and the investment directed at
sustainable projects that earn credits in the developing world can contribute to
the Millennium Development Goals. Critics of
Climate Change point to problems of
complexity, monitoring, enforcement, and sometimes dispute the initial
allocation methods and cap.[4]
Contents
[hide]
* 1 Overview
* 2 History
* 3 Cap and trade versus baseline and credit
* 4 The economics of international
Climate Change
o 4.1 Example
o 4.2 Applying the economic theory
o 4.3 Prices versus quantities, and the safety valve
* 5 Trading systems
o 5.1 Kyoto Protocol
o 5.2 Australia
+ 5.2.1 Garnaut Draft Report
+ 5.2.2 Carbon Pollution Reduction Scheme
+ 5.2.3 History
o 5.3 European Union
o 5.4 New Zealand
o 5.5 United States
+ 5.5.1 Renewable energy certificates
* 6 The carbon market
o 6.1 Market trend
o 6.2 Business reaction
* 7 Measuring, reporting, verification (MRV) and enforcement
* 8 Criticism
* 9 See also
* 10 References
* 11 External links
o 11.1 General trading
o 11.2 Carbon trading
[edit] Overview
The overall goal of an Climate Change
plan is to reduce emissions. The cap is usually lowered over time - aiming
towards a national emissions reduction target. In other systems a portion of all
traded credits must be retired, causing a net reduction in emissions each time a
trade occurs. In many cap and trade systems, organizations which do not pollute
may also participate, thus environmental groups can purchase and retire
allowances or credits and hence drive up the price of the remainder according to
the law of demand. Corporations can also prematurely retire allowances by
donating them to a nonprofit entity and then be eligible for a tax deduction.
Because Climate Change uses markets
to determine how to deal with the problem of pollution, it is often touted as an
example of effective free market environmentalism. While the cap is usually set
by a political process, individual companies are free to choose how or if they
will reduce their emissions. In theory, firms will choose the least-costly way
to comply with the pollution regulation, creating incentives that reduce the
cost of achieving a pollution reduction goal.
Climate Change principles are based
on proposals by the Technocracy movement of the 1930's. Technocracy proposed a
system of Energy Accounting, or Climate
Change, to promote balanced and harmonious development throughout the
world.
[edit] History
The development of Climate Change
over the course of its history can be divided into four phases [5]:
1. Gestation: Theoretical articulation of the instrument (by Coase, Dales,
Montgomery etc) and, independent of the former, tinkering with "flexible
regulation" at the US Environmental Protection Agency
2. Proof of Principle: First developments towards trading of emission
certificates based on the "offset-mechanism" taken up in Clean Air Act in 1977.
3. Prototype: Launching of a first "cap and trade" system as part of US Acid
Rain Program, officially announced as a paradigm shift in environmental policy,
as prepared by "Project 88", a network building effort to bring together
environmental and industrial interests in the US
4. Regime formation: branching out from US clean air policy to global climate
policy, and from there to the European Union, along with the expectation of an
emerging global carbon market and the formation the "carbon industry".
[edit] Cap and trade versus baseline and credit
The textbook Climate Change program
can be called a "cap and trade" approach in which an aggregate cap on all
sources is established and these sources are then allowed to trade amongst
themselves to determine which sources actually emit the total pollution load. An
alternative approach with important differences is a baseline and credit
program.[6] In a baseline and credit program a set of polluters that are not
under an aggregate cap can create credits by reducing their emissions below a
baseline level of emissions. These credits can be purchased by polluters that do
have a regulatory limit. Many of the criticisms of trading in general are
targeted at baseline and credit programs rather than cap type programs.
[edit] The economics of international
Climate Change
It's possible for a country to reduce emissions using a Command-Control
approach, such as regulation, direct and indirect taxes. But that approach is
more costly for some countries than for others. That's because the Marginal
Abatement Cost (MAC) — the cost of eliminating an additional unit of pollution —
differs by country. It might cost China $2 to eliminate a ton of CO2, but it
would probably cost Sweden or the U.S. much more. International
emissions-trading markets were created precisely to exploit differing MACs.
[edit] Example
Climate Change can benefit both the
buyer and the seller through 'Gains from Trade'.
Consider two European countries, namely Germany and Sweden. Each can either
reduce all the required amount of emissions by itself or it can choose to buy or
sell in the market.
Example MACs for two different countries
Example MACs for two different countries
For this example let us assume that Germany can abate its CO2 at a much cheaper
cost than Sweden, e.g. MACS > MACG where the MAC curve of Sweden is steeper
(higher slope) than that of Germany, and RReq is the total amount of emissions
that need to be reduced by a country.
On the left side of the graph is the MAC curve for Germany. RReq is the amount
of required reductions for Germany, but at RReq the MACG curve has not
intersected the market allowance price of CO2 (market allowance price = P = λ).
Thus, given the market price of CO2 allowances, Germany has potential to profit
if it abates more emissions than required.
On the right side is the MAC curve for Sweden. RReq is the amount of required
reductions for Sweden, but the MACS curve already intersects the market price of
CO2 allowances before RReq has been reached. Thus, given the market allowance
price of CO2, Sweden has potential to profit if it abates fewer emissions than
required internally, and instead abates them elsewhere.
In this example Sweden would abate emissions until its MACS intersects with P
(at R*), but this would only reduce a fraction of Sweden’s total required
abatement. After that it could buy emissions credits from Germany for the price
'P' (per unit). The internal cost of Sweden’s own abatement, combined with the
credits it buys in the market from Germany, adds up to the total required
reductions (RReq) for Sweden. Thus Sweden can also profit from buying credits in
the market (Δ d-e-f). This represents the ‘Gains from Trade’, the amount of
additional expense that Sweden would otherwise have to spend if it abated all of
its required emissions by itself without trading.
Germany made a profit by abating more emissions than required: it met the
regulations by abating all of the emissions that was required of it (RReq).
Additionally, Germany sold its surplus to Sweden as credits, and was paid 'P'
for every unit it abated, while spending less than 'P'. Its total revenue is the
area of the graph (RReq 1 2 R*), its total abatement cost is area (RReq 3 2 R*),
and so its net benefit from selling emission credits is the area (Δ 1-2-3) i.e.
Gains from Trade
The two R* (on both graphs) represent the efficient allocations that arise from
trading.
* Germany: sold (R* - RReq) emission credits to Sweden at a unit price 'P'.
* Sweden bought emission credits from Germany at a unit price 'P'.
If the total cost for reducing a particular amount of emissions in the 'Command
Control' scenario is called 'X', then to reduce the same amount of combined
pollution in Sweden and Germany, the total abatement cost would be less in the 'Climate
Change' scenario i.e. (X - Δ 123 - Δ def).
The example above applies not just at the national level: it applies just as
well between two companies in different countries, or between two subsidiaries
within the same company.
[edit] Applying the economic theory
The nature of the pollutant plays a very important role when policy-makers
decide which framework should be used to control pollution.
CO2 acts globally, thus its impact on the environment is generally similar
wherever in the globe it is released. So the location of the originator of the
emissions does not really matter from an environmental standpoint.
The policy framework should be different for regional pollutants[7](e.g. SO2 and
NOX, and also Mercury) because the impact exerted by these pollutants may not be
the same in all locations. The same amount of a regional pollutant can exert a
very high impact in some locations and a low impact in other locations, so it
does actually matter where the pollutant is released. This is known as the 'Hot
Spot' problem.
A Lagrange framework is commonly used to determine the least cost of achieving
an objective, in this case the total reduction in emissions required in a year.
In some cases it is possible to use the Lagrange optimization framework to
determine the required reductions for each country (based on their MAC) so that
the total cost of reduction is minimized. In such a scenario, the Lagrange
Multiplier represents the market allowance price (P) of a pollutant, such as the
current market allowance price of emissions in Europe[8] and the USA.[9]
All countries face the market allowance price as existent in the market that
day, so they are able to make individual decisions that would maximize their
profit while at the same time achieving regulatory compliance. This is also
another version of the Equi-Marginal Principle, commonly used in economics to
choose the most economically efficient decision.
[edit] Prices versus quantities, and the safety valve
There has been longstanding debate on the relative merits of price versus
quantity instruments to achieve emission reductions.[10]
* An emission cap and permit trading system is a quantity instrument because it
fixes the overall emission level (quantity) and allows the price to vary. One
problem with the cap and trade system is the uncertainty of the cost of
compliance as the price of a permit is not known in advance and will vary over
time according to market conditions.
* In contrast, an emission tax is a price instrument because it fixes the price
while the emission level is allowed to vary according to economic activity. A
major drawback of an emission tax is that the environmental outcome (e.g. the
amount of emissions) is not guaranteed.
The best choice depends on the sensitivity of the costs of emission reduction,
compared to the sensitivity of the benefits (i.e., climate damages avoided by a
reduction) when the level of emission control is varied.
Because there is high uncertainty in the compliance costs of firms, some argue
that the optimum choice is the price mechanism.
However, some scientists have warned of a threshold in atmospheric
concentrations of carbon dioxide beyond which a run-away warming effect could
take place, with a large possibility of causing irreversible damages. If this is
a conceivable risk then a quantity instrument could be a better choice because
the quantity of emissions may be capped with a higher degree of certainty.
However, this may not be true if this risk exists but cannot be attached to a
known level of GHG concentration or a known emission pathway.[11]
A third option, known as a safety valve, is a hybrid of the price and quantity
instruments. The system is essentially an emission cap and tradeable permit
system but the maximum (or minimum) permit price is capped. Emitters have the
choice of either obtaining permits in the marketplace or purchasing them from
the government at a specified trigger price (which could be adjusted over time).
The system is sometimes recommended as a way of overcoming the fundamental
disadvantages of both systems by giving governments the flexibility to adjust
the system as new information comes to light. It can be shown that by setting
the trigger price high enough, or the number of permits low enough, the safety
valve can be used to mimic either a pure quantity or pure price mechanism.[12]
All three methods are being used as policy instruments to control greenhouse gas
emissions: the EU-ETS is a quantity system using the cap and trading system to
meet targets set by National Allocation Plans, the UK's Climate Change Levy is a
price system using a direct carbon tax, while China uses the CO2 market price
for funding of its Clean Development Mechanism projects, but imposes a safety
valve of a minimum price per tonne of CO2.
[edit] Trading systems
[edit] Kyoto Protocol
The Kyoto Protocol is a 1997 international treaty which came into force in 2005,
which binds most developed nations to a cap and trade system for the six major
greenhouse gases.[13] (The United States is the only industrialized nation under
Annex I which has not ratified and therefore is not bound by it.) Emission
quotas were agreed by each participating country, with the intention of reducing
their overall emissions by 5.2% of their 1990 levels by the end of 2012. Under
the treaty, for the 5-year compliance period from 2008 until 2012,[14] nations
that emit less than their quota will be able to sell emissions credits to
nations that exceed their quota.
It is also possible for developed countries within the trading scheme to sponsor
carbon projects that provide a reduction in greenhouse gas emissions in other
countries, as a way of generating tradeable carbon credits. The Protocol allows
this through Clean Development Mechanism (CDM) and Joint Implementation (JI)
projects, in order to provide flexible mechanisms to aid regulated entities in
meeting their compliance with their caps. The UNFCCC validates all CDM projects
to ensure they create genuine additional savings and that there is no leakage.
The Intergovernmental Panel on Climate Change has projected that the financial
effect of compliance through trading within the Kyoto commitment period will be
'limited' at between 0.1-1.1% of GDP among trading countries.[15] This compares
with an estimate in the Stern report which placed the costs of doing nothing at
five to 20 times higher.[16]
[edit] Australia
[edit] Garnaut Draft Report
Main article: Garnaut Climate Change Review
Professor Ross Garnaut of the Garnaut Climate Change Review released his draft
report on Friday 4 July 2008. It accepts the mainstream scientific opinion on
climate change as at the date submissions closed. It recommends a broadly based
Climate Change scheme with transport
included but not agriculture. It recommends that emissions permits be sold
competitively and not allocated free to carbon polluters. It recognises that
energy prices will increase and that low income families will need to be
compensated. It recommends higher support for research into low emissions
technologies and a new body to oversee such research. It also recognises the
need for transition assistance for coal mining areas. [17]
Given that Australia's total emissions are estimated to represent less than 2%
of the world's emissions, even if Australia were to achieve zero emissions by
2020 (which was not even possible before European settlement), this would pale
in comparison with the growing emissions of Kyoto-immune countries such as China
and India which, it is estimated, are currently contributing to an annual rise
in global emissions in excess of 1%. Therefore, on the basis of the above
scenario, by 2020 Australia will have reduced emissions by 2% of global levels
whilst China and India will have raised them by 12%, resulting (in the absence
of other countries emissions) in a net 10% increase in global emissions, while
critics point to the alleged adverse impact on Australian industry.
[edit] Carbon Pollution Reduction Scheme
Main article: Carbon Pollution Reduction Scheme
In response to Garnaut's draft report, issued on 4 July, the Rudd Labor
government issued a "Green Paper"[18] on 16 July, describing the intended design
of the carbon trading scheme. Draft legislation will be released in December
2008, to become law in 2009.[19]
[edit] History
On 4 June 2007, former Prime Minister John Howard announced an Australian Carbon
Trading Scheme to be introduced by 2012, but opposition parties called the plan
"too little, too late."[20] On 24 November 2007 Howard's coalition government
lost a general election and was succeeded by the Labor Party, with Kevin Rudd
taking over as prime minister. Prime Minister Rudd announced that a
cap-and-trade Climate Change scheme
would be introduced in 2010.[21] The Garnaut Climate Change Review, an
independent study by Professor Ross Garnaut, which was commissioned by
Australia's Commonwealth, State and Territory Governments on 30 April 2007, has
commented on the mechanics desirable for an
Climate Change scheme in its discussion paper on an
Climate Change scheme (released 20
March 2008) and its interim report (released on 21 February 2008).[22]
The New South Wales (NSW) state government established the NSW Greenhouse Gas
Abatement Scheme to reduce emissions by requiring electricity generators and
large consumers to purchase NSW Greenhouse Abatement Certificates (NGACs). This
has prompted the rollout of free energy-efficient compact fluorescent lightbulbs
and other energy-efficiency measures, funded by the credits. This scheme has
been criticised by the Centre for Energy and Environmental Markets of the UNSW (CEEM)
because of its reliance upon offsets. [23]
[edit] European Union
Main article: European Union Emission Trading Scheme
The European Union Emission Trading Scheme (or EU ETS) is the largest
multi-national, greenhouse gas Climate
Change scheme in the world and was created in conjunction with the Kyoto
Protocol.
After voluntary trials in the UK and Denmark, Phase I commenced operation in
January 2005 with all 15 (now 25 of the 27) member states of the European Union
participating.[24]The program caps the amount of carbon dioxide that can be
emitted from large installations, such as power plants and carbon intensive
factories and covers almost half of the EU's Carbon Dioxide emissions.[25] Phase
I permits participants to trade amongst themselves and in validated credits from
the developing world through Kyoto's Clean Development Mechanism.
Whilst the first phase (2005 - 2007) has received much criticism due to
oversupply of allowances and the distribution method of allowances (via
grandfathering rather than auctioning), Phase II links the ETS to other
countries participating in the Kyoto trading system. The European Commission has
been tough on Member States' Plans for Phase II, dismissing many of them as
being too loose again.[26] In addition, the first phase has established a strong
carbon market. Compliance was high in 2006, increasing confidence in the scheme,
although the value of allowances dropped when the national caps were met.
All EU member states have ratified the Kyoto Protocol, and so the second phase
of the EU ETS has been designed to support the Kyoto mechanisms and compliance
period. Thus any organisation trading through the ETS should also meet the
international trading obligations under Kyoto.
[edit] New Zealand
As of May 2008 the New Zealand Government has a bill for
Climate Change schemes before a
select committee. Various reports by a range of groups support the scheme but
differ in opinion as to how it should be implemented. [27] An interesting
feature of the New Zealand ETS is that it includes forest carbon and creates
deforestation liabilities for landowners.[1]
[edit] United States
An early example of an emission trading system has been the SO2 trading system
under the framework of the Acid Rain Program of the 1990 Clean Air Act in the
U.S. Under the program, which is essentially a cap-and-trade
Climate Change system, SO2 emissions
are expected to be reduced by 50 percent from 1980 to 2010. Some experts argue
that the "cap and trade" system of SO2 emissions reduction has reduced the cost
of controlling acid rain by as much as 80 percent versus source-by-source
reduction.[citation needed]
In 1997, the State of Illinois adopted a trading program for volatile organic
compounds in most of the Chicago area, called the Emissions Reduction Market
System.[28] Beginning in 2000, over 100 major sources of pollution in eight
Illinois counties began trading pollution credits.
In 2003, New York State proposed and attained commitments from nine Northeast
states to form a cap and trade carbon dioxide emissions program for power
generators, called the Regional Greenhouse Gas Initiative (RGGI). This program
is due to launch on January 1, 2009 with the aim to reduce the carbon "budget"
of each state's electricity generation sector to 10 percent below their 2009
allowances by 2018.[29]
Also in 2003, U.S. corporations were able to trade CO2 emission allowances on
the Chicago Climate Exchange under a voluntary scheme. In August 2007, the
Exchange announced a mechanism to create emission offsets for projects within
the United States that cleanly destroy ozone-depleting substances.[30]
In 2007, the California Legislature passed the California Global Warming
Solutions Act, AB-32, which was signed into law by Governor Arnold
Schwarzenegger. Thus far, flexible mechanisms in the form of project based
offsets have been suggested for five main project types. A carbon project would
create offsets by showing that it has reduced carbon dioxide and equivalent
gases. The project types include: manure management, forestry, building energy,
SF6, and landfill gas capture. California is also one of seven states and three
Canadian province that have joined together to create the Western Climate
Initiative, which has recommended the creation of a regional greenhouse gas
control and offset trading environment.[31]
[edit] Renewable energy certificates
Main article: Renewable Energy Certificates
Renewable Energy Certificates, or "green tags", are transferable rights for
renewable energy within some American states. A renewable energy provider gets
issued one green tag for each 1,000 KWh of energy it produces. The energy is
sold into the electrical grid, and the certificates can be sold on the open
market for additional profit. They are purchased by firms or individuals in
order to identify a portion of their energy with renewable sources and are
voluntary.
They are typically used like an offsetting scheme or to show corporate
responsibility, although their issuance is unregulated, with no national
registry to ensure there is no double-counting. However, it is one way that an
organization could purchase its energy from a local provider who uses fossil
fuels, but back it with a certificate that supports a specific wind or hydro
power project.
[edit] The carbon market
This section deals with mandatory carbon
Climate Change between nations. For voluntary carbon trading schemes for
individuals, see Personal carbon trading and Carbon offset
Main article: Carbon emission trading
Carbon Climate Change is
Climate Change specifically for
carbon dioxide (calculated in tonnes of carbon dioxide equivalent or tCO2e) and
currently makes up the bulk of Climate
Change. It is one of the ways countries can meet their obligations under
the Kyoto Protocol to reduce carbon emissions and thereby mitigate global
warming.
[edit] Market trend
Carbon Climate Change has been
steadily increasing in recent years. According to the World Bank's Carbon
Finance Unit, 374 million metric tonnes of carbon dioxide equivalent (tCO2e)
were exchanged through projects in 2005, a 240% increase relative to 2004 (110
mtCO2e)[32] which was itself a 41% increase relative to 2003 (78 mtCO2e).[33]
In terms of dollars, the World Bank has estimated that the size of the carbon
market was 11 billion USD in 2005, 30 billion USD in 2006[32], and 64 billion in
2007[34].
[edit] Business reaction
With the creation of a market for mandatory trading of carbon dioxide emissions
within the Kyoto Protocol, the London financial marketplace has established
itself as the center of the carbon finance market, and is expected to have grown
into a market valued at $60 billion in 2007.[35] The voluntary offset market, by
comparison, is projected to grow to about $4bn by 2010.[36]
23 multinational corporations came together in the G8 Climate Change Roundtable,
a business group formed at the January 2005 World Economic Forum. The group
included Ford, Toyota, British Airways, BP and Unilever. On 9 June 2005 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.[37] By December 2007 this had grown to encompass
150 global businesses.[38]
Business in the UK have come out strongly in support of
Climate Change as a key tool to
mitigate climate change, supported by Green NGOs.[39]
[edit] Measuring, reporting, verification (MRV) and enforcement
Meaningful emission reductions within a trading system can only occur if they
can be measured at the level of operator or installation and reported to a
regulator. For greenhouse gases all trading countries maintain an inventory of
emissions at national and installation level; in addition, the 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 for measurement. Depending on local legislation,
these measurements may require additional checks and verification by government
or third party auditors, prior or post submission to the local regulator.
Another critical part is enforcement.[40] Without effective MRV and enforcement
the value of allowances are diminished. Enforcement can be done using several
means, including fines or sanctioning those that have exceeded their allowances.
Concerns include the cost of MRV and enforcement and the risk that facilities
may be tempted to mislead rather than make real reductions or make up their
shortfall by purchasing allowances or offsets from another entity. 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.
[edit] Criticism
There are critics of the methods, mainly environmental justice NGOs and
movements, who see carbon trading as a proliferation of the free market into
public spaces and environmental policy-making.[41] They level accusations of
failures in accounting, dubious science and the destructive impacts of projects
upon local peoples and environments as reasons why trading pollution allowances
should be avoided.[42] In its place they advocate making reductions at the
source of pollution and energy policies that are justice-based and
community-driven.[43] Most of the criticisms have been focused on the carbon
market created through investment in Kyoto Mechanisms. Criticism of 'cap and
trade' Climate Change has generally
been more limited to lack of credibility in the first phase of the EU ETS.
Critics argue that Climate Change
does little to solve pollution problems overall, as groups that do not pollute
sell their conservation to the highest bidder. Overall reductions would need to
come from a sufficient and challenging reduction of allowances available in the
system. It is possible that this would occur over time through central
regulation, though some environmental groups acted more immediately by buying
credits and refusing to use or sell them[citation needed].
Regulatory agencies run the risk of issuing too many emission credits, diluting
the effectiveness of regulation, and practically removing the cap. In this case,
instead of any net reduction in carbon dioxide emissions, beneficiaries of
Climate Change simply do more of the
polluting activity. The National Allocation Plans by member governments of the
European Union Emission Trading Scheme were criticised for this when it became
apparent that actual emissions would be less than the government-issued carbon
allowances at the end of Phase I of the scheme.
They have also been criticised for the practice of grandfathering, where
polluters are given free allowances by governments, instead of being made to pay
for them.[44] Critics instead advocate for auctioning the credits. The proceeds
could be used for research and development of sustainable technology.[45]
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.[46]
Although many economists advocate carbon trading schemes, some others favor a
carbon tax instead. Possible problems with cap and trade systems
include[citation needed]:
* Trading may be a more complicated means of achieving the same objective
* Permit prices may be unstable and therefore unpredictable
* Some cap and trade systems pass the quota rent to business though
grandfathering (a certain number of credits are given away for free rather than
auctioned)
* Cap and trade systems could become the basis for international trade in the
quota rent resulting in very large transfers across frontiers
* Cap and trade systems are seen to generate more corruption than a tax system
* The administration and legal costs of cap and trade systems are higher than
with a tax
* A cap and trade system is seen to be impractical at level of individual
household emissions
The problem of unstable prices can be resolved, to some degree, by the creation
of forward markets in caps. Nevertheless, it is easier to make a tax predictable
than the price of a cap. However, the corresponding uncertainty under a tax is
the level of emissions reductions achieved.
The Financial Times wrote an article on cap and trade systems that argues that
"Carbon markets create a muddle" and "...leave much room for unverifiable
manipulation".[47]
More recent criticism of Climate Change
regarding implementation is that old growth forests (which have slow carbon
absorption rates) are being cleared and replaced with fast-growing vegetation,
to the detriment of the local communities.[48]
Recent proposals for alternative schemes that seek to avoid the problems of Cap
and Trade schemes include Cap and Share, which at May 2008 is being actively
considered by the Irish Parliament, and the Sky Trust schemes.
[edit] See also
Energy portal
* Acid rain
* Air pollution
* AP 42 Compilation of Air Pollutant Emission Factors
* Atmospheric dispersion modeling
* Cap and Share
* Carbon credit
* Carbon emissions reporting
* Carbon finance
* Carbon leakage
* Carbon project
* Carbon Trade Watch
* Coase Theorem
* Demand Responsive Transit Exchange
* Emission standards
* Energy speculation
* European Union Emission Trading Scheme
* Flexible Mechanisms
* Green certificate
* Green investment scheme
* Green tags
* Greenwash
* Individual and political action on climate change
* Low-carbon economy
* Mobile Emission Reduction Credit (MERC)
* Nutrient trading
* Personal carbon trading
* Pigovian tax
* Regional Clean Air Incentives Market (RECLAIM, an emission trading scheme in
California)
* The Sky Trust
* Tradable smoking pollution permits
* International Climate Change
Association
* The Stern Review on the economics of climate change - Chapters 14 and 15 have
extensive discussions on emission trading schemes and carbon taxes
* Carry On Polluting - Comment and analysis piece by Larry Lohmann, published in
New Scientist magazine on the 2nd December 2006
* Ways Forward - Chapter 5 of the book, "Carbon Trading: A Critical Conversation
on Climate Change, Privatisation and Power", published October 2006 by Dag
Hammarskjöld Foundation, Durban Group for Climate Justice and The Corner House.
* EU shows carbon trading is not cutting emissions
* Chandler: More Flexibility Needed for Effective Emissions Cap-and-Trade Policy
Council on Foreign Relations
* Green Structured Products are likely to Proliferate piece by Edmund Parker and
Nicole Purin, Mayer Brown, published in Financial News, 3 December 2007
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Natural
Albedo · Bond events · Cloud forcing · Glaciation · Global cooling · Ocean
variability (AMO · ENSO · IOD · PDO) · Orbital variations · Orbital forcing ·
Radiative forcing · Solar variation · Volcanism
Opinion and
controversy
Scientific opinion · Scientists opposing the mainstream assessment · Climate
change denial
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Models and politics
Models
Global climate model
Politics
United Nations Framework Convention on Climate Change (UNFCCC / FCCC) ·
Intergovernmental Panel on Climate Change (IPCC)
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Potential effects and issues
General
Climate change and agriculture · Drought · Economics of global warming · Glacier
retreat · Mass extinction · Ozone depletion · Ocean acidification · Sea level
rise · Season creep · Shutdown of thermohaline circulation
By country
Australia · India · United States
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Mitigation
Kyoto Protocol
Clean Development Mechanism · Joint Implementation · Bali roadmap
Governmental
European Climate Change Programme · United Kingdom Climate Change Programme ·
Oil phase-out in Sweden
Schemes
Climate Change · Personal carbon
trading · Carbon tax · Carbon offset · Carbon credit · Carbon dioxide sink
(Carbon sequestration) · Cap and Share
Energy conservation
Efficient energy use · Renewable energy · Renewable energy commercialization ·
Renewable energy development · Soft energy path
Other
G8 Climate Change Roundtable · Individual and political action on climate change
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Proposed adaptations
Strategies
Damming glacial lakes · Drought tolerance · Irrigation investment · Rainwater
storage · Sustainable development · Weather control
Programmes