Carbon Permits Trading Essay

The UNFCCC is working with the various governments around the world to stabilize the amount of greenhouse gases emitted into the atmosphere to keep the planet from warming more than 2ºC above pre-industrial temperatures (Watts, 2015). The most noted of the work is the annual Conference of the Parties (COP) meetings that began with COP1 in Berlin back in 1995. The COP3 adopted the Kyoto Protocol, even though it wasn’t fully accepted by all member nations. The COP21 was an effort to legally bind members to their submitted plans of Intended Nationally Determined Contributions (INDCs), defining what level of greenhouse gas production each nation would commit to not exceeding from 2025-2030. Prior to the INDCs, a bleak outlook was forecast in 2009-2010 of global temperature rising between 4-5ºC. That figure was restated by the UNFCCC prior to the COP21 in Paris, to below 3ºC, due to the commitments of the INDCs (Watts, 2015).

A cap-and-trade program sets a maximum level of pollution, and distributes emission permits among firms that produce emissions (Carbon Tax, 2013). The purpose of which is regulation of specific emissions by stationary and mobile sources, and setting a specific level which all emitters are re-quired to meet. Cap-and-trade possibly has less of a direct economic component to it than the other alternatives to reducing emissions described due to the ability to trade permits versus the expendi-ture of resources improving technology, with some arguing it is to the detriment of the environment. As stated in the article found in Reclaiming the Environmental Agenda, by Ashford, N. et al., 2008, “being a market-based instrument, ‘the cap-and-trade option suggests that at least this form of MBI may be more environmentally effective than the usual command-and-control alternatives, in addition to being more economically efficient.” (Ashford, N. and Caldart, C., 2008, p. 908).

Its adoption in 1997 and ratification in 2002 furthered the fight against anthropogenic interference with earth’s climate system. Canada’s commitment began with a goal to reduce GHGs by 6% reduction from 1990 levels by 2012, or 461 megatons (Canada and the Kyoto Protocol 2016). In order to achieve these goals, legal requirements expected policies and measures prepared by the participating countries to reduce GHGs, by utilizing all available mechanisms, including joint implementation to earn emissions reduction units (ERU) to be counted towards the target, the clean development mechanism and emissions trading (Kyoto Protocol 1997). Every year, on the date set forth, every participating country was expected to keep track of emissions limits and performance standards, develop spending or fiscal measures, as well their expectation for the next year and results from the previous (E. Canada 2013). When the first reduction timeline was up in 2008, instead of a decrease in emissions, Canada recorded an increase 24.1 percent higher than 1990 levels. The lack of commitment was superseded by the new government’s ‘Made in Canada” effort to push country-unified laws, though no significant changes were

The cap on the market is set on carbon emissions, creating scarcity within the market. At the end of each year businesses within the scheme are required to ensure they have enough allowances to account for their installation’s actual emissions. Those firms that do not comply and pollute without sufficient permits are hit with heavy fines. (Euro 100 per ton). The aim of carbon trading is to create a market in pollution permits and put a price on carbon. In this way, policy can help internalise external costs of firms’ production and encourage lower emissions to tackle climate change. In a cap and trade system, the volume permits would gradually decline and total emissions, in theory, will diminish. The model of such can be shown as

According to the case, the carbon-tax and a cap-and-trade system are the best economic tool to employ to reduce emissions. As we know, taxes are the most important expense for a company or firm, if they would emit much more carbon dioxide and other gases, they need to pay more taxes on using carbon recourses. It is stated (Bubna-Litic & Chalifour 2012) that ‘One of the defining features of carbon taxes is that they generate a relatively clear and predictable stream of revenue’. The revenue can be used in many different ways and a key issue is how

First we should understand how the carbon cap and trade system came about. The system of carbon cap trade used to be known as ‘emissions trading’, the alliance of free-market republicans and renegade environmentalists got the system adopted as national law in 1990 as a part of the Clean Air Act, to control the power-plant pollutants that cause acid rain, which is triggered by vast clouds of sulfur dioxide

Europe uses a cap and trade program to keep its carbon dioxide pollution within levels required by International agreements. (Upton 2015) Texas and Ohio is some of the biggest polluters who are required to make big reduction under the new policy. As for the smaller states they will be allowed in the near future to increase their amount produced pollution. The cap and trade program covers industrial sectors

“The cap”: Each large-scale emitter, or company, will have a limit on the amount of greenhouse gas that it can emit. “The trade”: It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than others. These more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily.

Cap-and-trade is a system designed to reduce emissions. Once a cap of certain emissions is set, companies are allowed to sell their unused portion to ones who exceed the cap. The feature of cap-and-trade is that instead of commanding companies how to reduce their emissions, it simply imposes a cap on emissions1. A company makes it own decision on how to use it allowance. Companies are rewarded by selling the left quota under the cap or they have to purchase extra allowance from the market.

In Australia, there is an emerging consensus that the government should take further actions to help mitigate and combat climate change. The current most accepted policy by government is the introduction of a carbon tax followed by an ETS in 2015. However we are focusing on the carbon tax in this essay and not the ETS. Here is a brief explanation of the dynamics of a carbon tax. A carbon tax is a tax on energy sources, which emit carbon dioxide (Co2). Therefore, carbon taxes address the problem of negative externality. Externalities are the subsequent effects when individual production or consumption of a particular good or service imposes costs or benefits on others. Therefore negative externalities are effects, which pose harm to others without their direct interaction (Basic Economics 2011). However, usual market practices and transactions do not reflect these cost and benefits in the prices involved in the transaction, or take into account in their transaction decision. Therefore this is a form of market failure. By imposing a cost on these negative externalities, the hidden cost can be addressed. Ultimately the purpose of a carbon tax is to reduce emissions of carbon dioxide and therefore reduce

“The Kyoto Protocol is an international treaty which extends the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits State Parties to reduce greenhouse gas emissions, based on the premise that (a)

According to an article focused on environmental awareness, “the world’s average surface temperature rose by approximately 1 degree Fahrenheit, the fastest rate in any period over the last 1000 years” (Source A). Damage has already been done to the environment but it is not the time to throw our hands up, it is the time for leaders in all sectors to tackle this issue head on. We know that carbon dioxide is the culprit, so now it is imperative to implement the solution and take a hard look at who is producing the most greenhouse gases. Big changes need to take place but they can only be done in steps and not all at once to be effective. In an excerpt from a book about global warming, Mark Maslin brings up the point that many feel the Kyoto Protocol does not go far enough; scientists believe that a 60% cut of greenhouse gas emissions is necessary in order to “prevent major climate change” (Source E). A sixty percent cut of emissions should be what countries work up to achieving but first and foremost, every country needs to agree to the Kyoto Protocol guidelines. The Kyoto Protocol itself should not be viewed as the end in the discussion of greenhouse gas restrictions, but rather the first stepping stone to a much broader and effective

Although the Kyoto Protocol had the right intentions with the desire to lower greenhouse gases, however, lowering gas emissions would hinder the economy for many of the nations without a proper substitution or solution. This is a proposal that would not sit well with many of nations; especially since the nations did not all agree climate change. The Kyoto Protocol would produce concentrated costs because lowering gas emissions would affect nations differently, and in addition to that, there would exist a distribution of benefits because not all nations would benefit equally because their polluted atmospheres vary. With a proposal that could hinder the progress of they industry, “both economics and politics deal with problems of scarcity and conflicting preferences” in which nations would rather support the economy than take a risk at an opportunity to help the atmosphere (Wilson 363). The Kyoto Protocol falls under the categorization as entrepreneurial politics where the overall conclusion contains distributed benefits and concentrated

Greenhouse gases come from such mainstays of modern life as electrical power plants, automobiles, and heavy industry. Growing consumption of fuel by less efficient cars and light trucks suggests that motor vehicles may soon overtake industry as the largest source of gases suspected of causing global warming by effectively creating a greenhouse around the Earth. Many people do not want to decrease their standard of living by reducing their consumption of fossil fuels. These people do not realize that if they reduce their consumption, there will be a reduction in the amount of greenhouse gases. If this does not happen and global warming continues, the long-term effects may be catastrophic.

“For the time being, however, it is still the flexibility mechanisms that have attracted the most attention… (11).” The “flexibility mechanisms” are the offshore policies of joint implementation, clean development, and emissions trading. As the primary focus of the protocol and creating the biggest impact on international trade, these provisions in the agreement concern international trading of emissions credits.