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Carbon emissions trading involves the trading of permits to emit carbon dioxide (and other greenhouse gases, calculated in tonnes of carbon dioxide equivalent, tCO₂e). It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce emissions and thereby mitigate global warming.

107 million metric tonnes of carbon dioxide equivalent (tCO₂e) have been exchanged through projects in 2004, a 38% increase relative to 2003 (78 mtCO₂e).[1]

Operation

A country (or group of countries) caps its carbon emissions at a certain level (this is known as cap and trade) and then issue permits to firms and industries that grant the firm the right to emit a stated amount of carbon dioxide over a time period. Firms are then free to trade these credits in a free market. Firms whose emissions exceed the amount of credits they possess will be heavily penalised. The idea behind carbon trading is that firms that can reduce their emissions at a low cost will do so and then sell their credits on to firms that are unable to easily reduce emissions. A shortage of credits will drive up the price of credits and make it more profitable for firms to engage in carbon reduction. In this way the desired carbon reductions are met at the lowest cost possible to society.

Current carbon trading schemes

The European Union Greenhouse Gas Emission Trading Scheme (EU ETS) is the largest multi-national, greenhouse gas emissions trading scheme in the world. It commenced operation in January 2005 and all 25-member states of the European Union participate in the scheme.

The Regional Greenhouse Gas Initiative is a proposed carbon trading scheme being created by nine North-eastern and Mid-Atlantic American states; Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. The scheme was due to be developed by April 2005 but has not yet been completed.

The Kyoto Protocol Global Warming Contact Us

Carbon emissions trading Carbon emissions trading involves the trading of permits to emit carbon dioxide (and other greenhouse gases, calculated in tonnes of carbon dioxide equivalent, tCO₂e). It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce emissions and thereby mitigate global warming. 107 million metric tonnes of carbon dioxide equivalent (tCO₂e) have been exchanged through projects in 2004, a 38% increase relative to 2003 (78 mtCO₂e).[1] Operation A country (or group of countries) caps its carbon emissions at a certain level (this is known as cap and trade) and then issue permits to firms and industries that grant the firm the right to emit a stated amount of carbon dioxide over a time period. Firms are then free to trade these credits in a free market. Firms whose emissions exceed the amount of credits they possess will be heavily penalised. The idea behind carbon trading is that firms that can reduce their emissions at a low cost will do so and then sell their credits on to firms that are unable to easily reduce emissions. A shortage of credits will drive up the price of credits and make it more profitable for firms to engage in carbon reduction. In this way the desired carbon reductions are met at the lowest cost possible to society. Current carbon trading schemes The European Union Greenhouse Gas Emission Trading Scheme (EU ETS) is the largest multi-national, greenhouse gas emissions trading scheme in the world. It commenced operation in January 2005 and all 25-member states of the European Union participate in the scheme. The Regional Greenhouse Gas Initiative is a proposed carbon trading scheme being created by nine North-eastern and Mid-Atlantic American states; Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. The scheme was due to be developed by April 2005 but has not yet been completed.
Business opinion With the creation of a market for trading carbon dioxide emissions within the Kyoto Protocol, it is likely that London financial markets will be the centre for this potentially highly lucrative business; the New York and Chicago stock markets would like a share (which is unlikely as long as the US rejects Kyoto).[2] The European Union's European Union Greenhouse Gas Emission Trading Scheme (EU ETS) began operations on 1 January 2005. 23 multinational corporations have come together in the G8 Climate Change Roundtable, a business group formed at the January 2005 World Economic Forum. The group includes Ford, Toyota, British Airways and BP. 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.
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Carbon emissions trading

Operation

Current carbon trading schemes

Business opinion