As the IPCC reports came in over the years they shed abundant light on the true state of global warming and they gave support to the environmental effort to address this unprecedented problem. However, the same discussions that started decades back had never ceased and the crusade for a tangible solution to global climate change had gone on all the while. In 1997 the Kyoto Protocol was adopted. The Kyoto Protocol is a 1997 international treaty which came into force in 2005. In the treaty, most developed nations agreed to legally binding targets for their emissions of the six major greenhouse gases. Emission quotas (known as "Assigned amounts") were agreed by each participating 'Annex 1' country, with the intention of reducing the overall emissions by 5.2% from their 1990 levels by the end of 2012. The United States is the only industrialized nation under Annex I that has not ratified the treaty, and is therefore not bound by it. 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.
The Protocol defines several mechanisms ("flexible mechanisms") that are designed to allow Annex I countries to meet their emission reduction commitments (caps) with reduced economic impact (IPCC, 2007).
Under Article 3.3 of the Kyoto Protocol, Annex 1 Parties may use GHG removals, from afforestation and reforestation (forest sinks) and deforestation (sources) since 1990, to meet their emission reduction commitments.
Annex 1 Parties may also use International Emissions Trading (IET). Under the treaty, for the 5-year compliance period from 2008 until 2012, nations that emit less than their quota will be able to sell Assigned amount units to nations that exceed their quota. It is also possible for Annex I countries to sponsor carbon projects that reduce greenhouse gas emissions in other countries. These projects generate tradable carbon credits that can be used by Annex I countries in meeting their caps. The project-based Kyoto Mechanisms are the Clean Development Mechanism (CDM) and Joint Implementation (JI).
The CDM covers projects taking place in non-Annex I countries, while JI covers projects taking place in Annex I countries. CDM projects are supposed to contribute to sustainable development in developing countries, and also generate "real" and "additional" emission savings, i.e., savings that only occur thanks to the CDM project in question (Carbon Trust, 2009, p. 14). Whether or not these emission savings are genuine is, however, difficult to prove (World Bank, 2010, pp. 265–267).
Australia
Garnaut Draft Report
In 2003 the New South Wales (NSW) state government unilaterally 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 (CEEM) of the UNSW because of its lack of effectiveness in reducing emissions, its lack of transparency and its lack of verification of the additionality of emission reductions.
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". 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 emissions trading scheme would be introduced in 2010, however this scheme was initially delayed by a year to mid-2011, and in May 2010, it was subsequently delayed further until 2013.
Australia's Commonwealth, State and Territory Governments commissioned the Garnaut Climate Change Review, a study by Professor Ross Garnaut on the mechanism of a potential emissions trading scheme. Its interim report was released on 21 February 2008. It recommended an emissions trading scheme that includes transportation but not agriculture, and that emissions permits should be sold competitively and not allocated free to carbon polluters. It recognised that energy prices will increase and that low income families will need to be compensated. It recommended more support for research into low emissions technologies and a new body to oversee such research. It also recognised the need for transition assistance for coal mining areas.
In response to Garnaut's draft report, the Rudd Labor government issued a Green Paper on 16 July that described the intended design of the actual trading scheme.
Subsequent to this, the emission trading scheme proposed by the Government was defeated in the Senate, with the Opposition, the Greens and two independent senators opposing the proposed legislation.
New Zealand
The New Zealand Emissions Trading Scheme (NZ ETS) is a national all-sectors all-greenhouse gases uncapped emissions trading scheme first legislated in September 2008 by the Fifth Labour Government of New Zealand and amended in November 2009 by the Fifth National Government of New Zealand.Although the NZ ETS covers all-sectors and all-gases, individual sectors of the economy have different entry dates when their obligations to report emissions and surrender emission units have effect. Forestry, a net sink which contributed removals of 14 Mts of CO2e in 2008 or 19% of NZ's 2008 emissions, entered on 1 January 2008. Emissions from stationary energy, industrial and liquid fossil fuel sectors (34 Mts in 2008, 45% of 2008 emissions, entered the NZ ETS on 1 July 2010. Agricultural emissions (mainly 35 Mts of methane and nitrous oxide emissions from pastoral ruminants or 47% of 2008 emissions) do not enter the scheme until 1 January 2015.
Tradable emission units will be issued by free allocation to emitters, with no auctions in the short term. The fishing sector will receive free units on a historic basis, 90 per cent of their 2005 emissions (bullet points 9 & 10 MfE September 2009). Pre-1990 forests will receive a fixed free allocation of 60 emissions units per hectare. Allocation to emissions-intensive industry, and agriculture will be provided on an output-intensity basis, which will be based on the industry average emissions per unit of output and will be uncapped. Bertram and Terry (2010, p 16 ) state that as there is no 'cap' on emissions, the NZ ETS is not a cap and trade scheme as understood in the economics literature.
A transition period will operate from 1 July 2010 until 31 December 2012. During this period the price of New Zealand Emissions Units (NZUs) will be capped at NZ$25. Also, one unit will only need to be surrendered for every two tonnes of carbon dioxide equivalent emissions, effectively reducing the carbon price to NZ$12.50 per tonne (MfE 2009, second bullet point).
Section 3 of the Climate Change Response Act 2002 (the Act) defines the purpose of the Act as to reduce emissions from business-as-usual-levels and to fulfill New Zealand's international obligations under the United Nations Frame Work Convention on Climate Change (UNFCCC) and the Kyoto Protocol. Some stakeholders have criticized the New Zealand Emissions Trading Scheme for its generous free allocations of emission units and the lack of a carbon price signal (the Parliamentary Commissioner for the Environment), and being ineffective in reducing emissions (Greenpeace NZ).
European Union
The European Union Emission Trading Scheme (or EU ETS) is the largest multi-national, greenhouse gas emissions trading scheme in the world. It is one of the EU's central policy instruments to meet their cap set in the Kyoto Protocol (Jones et al.., 2007, p. 64).
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. The program caps the amount of carbon dioxide that can be emitted from large installations with a net heat supply in excess of 20 MW, such as power plants and carbon intensive factories and covers almost half (46%) of the EU's Carbon Dioxide emissions. Phase I permits participants to trade amongst themselves and in validated credits from the developing world through Kyoto's Clean Development Mechanism.
During Phases I and II, allowances for emissions have typically been given free to firms, which has resulted in them getting windfall profits (CCC, 2008, p. 149). Ellerman and Buchner (2008) (referenced by Grubb et al.., 2009, p. 11) suggested that during its first two years in operation, the EU ETS turned an expected increase in emissions of 1-2 percent per year into a small absolute decline. Grubb et al.. (2009, p. 11) suggested that a reasonable estimate for the emissions cut achieved during its first two years of operation was 50-100 MtCO2 per year, or 2.5-5 percent.
A number of design flaws have limited the effectiveness of scheme (Jones et al.., 2007, p. 64). In the initial 2005-07 period, emission caps were not tight enough to drive a significant reduction in emissions (CCC, 2008, p. 149). The total allocation of allowances turned out to exceed actual emissions. This drove the carbon price down to zero in 2007. This oversupply reflects the difficulty in predicting future emissions which is necessary in setting a cap.
Phase II saw some tightening, but the use of JI and CDM offsets was allowed, with the result that no reductions in the EU will be required to meet the Phase II cap (CCC, 2008, pp. 145, 149). For Phase II, the cap is expected to result in an emissions reduction in 2010 of about 2.4% compared to expected emissions without the cap (business-as-usual emissions) (Jones et al.., 2007, p. 64). For Phase III (2013–20), the European Commission has proposed a number of changes, including:
- the setting an overall EU cap, with allowances then allocated to EU members;
- tighter limits on the use of offsets;
- unlimiting banking of allowances between Phases II and III;
- and a move from allowances to auctioning.
In January 2008 Norway, Iceland, and Lichtenstein, joined the European Union Emissions Trading System (EU ETS) according to a publication from the European Commission. The Norwegian Ministry of the Environment has also released its draft National Allocation Plan which provides a carbon cap-and-trade of 15 million metric tonnes of CO2, 8 million of which are set to be auctioned. According to the OECD Economic Survey of Norway 2010, the nation "has announced a target for 2008-12 10% below its commitment under the Kyoto Protocol and a 30% cut compared with 1990 by 2020."
Tokyo, Japan
The Japanese city of Tokyo is like a country in its own right in terms of its energy consumption and GDP. Tokyo consumes as much energy as "entire countries in Northern Europe, and its production matches the GNP of the world’s 16th largest country". Originally, Japan had its own cap and trade system that had been in place for some years, but was not effective. Japan has its own emission reduction policy but not a nationwide cap and trade program. This climate strategy is enforced and overseen by the Tokyo Metropolitan Government (TMG). The first phase, which is alike to Japan's scheme, runs up to 2014, these organizations will have to cut their carbon emissions by 6%; those who fail to operate within their emission caps will from 2011 on be required to purchase emission allowances to cover any excess emissions, or alternatively, invest in renewable energy certificates or offset credits issued by smaller businesses or branch offices. Firms whom fail to comply will face fines. According to local reports, organizations that do not operate within their caps will also be ordered to cut emissions by 1.3 times the amount they failed to reduce during the first phase of the scheme. The long term aim is to cut the metropolis' carbon emissions by 25% from 2000 levels by 2020.
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 emissions trading system, SO2 emissions were reduced by 50% from 1980 levels by 2007. 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% versus source-by-source reduction.
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. 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 launched on January 1, 2009 with the aim to reduce the carbon "budget" of each state's electricity generation sector to 10% below their 2009 allowances by 2018.
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.
Also in 2003, the Environmental Protection Agency (EPA) began to administer the NOx Budget Trading Program (NBP)under the NOx State Implementation Plan (also known as the “NOx SIP Call”) The NOx Budget Trading Program was a market-based cap and trade program created to reduce emissions of nitrogen oxides (NOx) from power plants and other large combustion sources in the eastern United States. NOx is a prime ingredient in the formation of ground-level ozone (smog), a pervasive air pollution problem in many areas of the eastern United States. The NBP was designed to reduce NOx emissions during the warm summer months, referred to as the ozone season, when ground-level ozone concentrations are highest. In March 2008, EPA again strengthened the 8-hour ozone standard to 0.075 parts per million (ppm) from its previous 0.008 ppm.
In 2006, 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. The project types include: manure management, forestry, building energy, SF6, and landfill gas capture. However, a recent ruling from Judge Ernest H. Goldsmith of San Francisco's Superior Court states that the rules governing California's cap-and-trade system were adopted without a proper analysis of alternative methods to reduce greenhouse gas emissions. The tentative ruling, issued on January 24, 2011, argues that the California Air Resources Board violated state environmental law by failing to consider such alternatives. If the decision is made final, the state would not be allowed to implement its proposed cap-and-trade system until the California Air Resources Board fully complies with the California Environmental Quality Act.
Since February 2007, seven U.S. states and four Canadian provinces have joined together to create the Western Climate Initiative (WCI),a regional greenhouse gas emissions trading system. July 2010, a meeting took place to further outline the cap-and-trade system which if accepted would curb greenhouse gas emissions by January 2012.
On November 17, 2008 President-elect Barack Obama clarified, in a talk recorded for YouTube, his intentions for the US to enter a cap-and-trade system to limit global warming.
The 2010 United States federal budget proposes to support clean energy development with a 10-year investment of US $15 billion per year, generated from the sale of greenhouse gas (GHG) emissions credits. Under the proposed cap-and-trade program, all GHG emissions credits would be auctioned off, generating an estimated $78.7 billion in additional revenue in FY 2012, steadily increasing to $83 billion by FY 2019.[100]
The American Clean Energy and Security Act (H.R. 2454) , a greenhouse gas cap-and-trade bill, was passed on June 26, 2009, in the House of Representatives by a vote of 219-212. The bill originated in the House Energy and Commerce Committee and was introduced by Rep. Henry A. Waxman and Rep. Edward J. Markey. It was never passed in the Senate. The big Republican wins in the November 2010 U.S. Congressional election have further reduced the chances of a climate bill being adopted during President Barack Obama's first term.
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 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.
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