Carbon-emission trading scheme

Oxera, 2004. The European Emissions Trading Scheme Implications for Industrial Competitiveness. Report for the Carbon Trust. 

Carbon emissions from large stationary sources are more readily controlled than those from smaller, dispersed units. In Europe, the European Union Emission Trading Scheme (ETS) that aims to limit carbon emissions from these point sources was implemented on 1 January 2005. Individual plants are issued with permits which specify the level of carbon that each may emit annually. Companies with surplus permits may sell these to others who wish to exceed their respective allowances. At first, the scheme did not work well because the initial allocations were generous and the market price of permits was too low to be effective in curtailing emissions. In the next phase of the programme, permits could be restricted and their market value would then rise. As these regulations begin to bite and companies have to purchase additional permits on the open market at realistic prices, it may become financially attractive - if not actually required by law - to fit carbon-capture equipment to their exhaust stacks. 

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A growing number of OECD countries are implementing cap-and-trade schemes as key elements of their national climate policies In 2005, the European Union launched its Emissions Trading Scheme (EU ETS), which regulates about 10,000 facilities that currently emit around 2 Gt of CO per year (Skjaerseth and Wettestad, 2008). With a market value of US 50 billion, the EU ETS dominates the international carbon market, which totalled US 64 billion in 2007 (Capoor and Ambrosi, 2008). 

In the first case, governments can devolve trading activity to the level of companies in order to enhance carbon market efficiency, and trade only on behalf of sectors not covered by domestic emissions trading schemes ([Ql]Hahn and Stavins, 1999). In fact, this is the approach currently adopted by the European Union, where EU ETS allowances (EUAs) traded across national country borders correspond to Kyoto units (AAUs). Another design option relates to whether companies may or may not be allowed to trade with governments. According to economic theory this would be the most efficient option. ... 

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An added value easy to quantify is the saving on CO2 certificates. Since 2013 the chemical industry must participate in the EU emission trading scheme (ETS). This means that emissions from the production of hydrogen must be covered by certificates. By producing carbon-neutral hydrogen, these certificates can be saved. With a price for the certificates of approx. 7 /t, the added value is however relatively small. As shown in Fig. 10.6 the effect is currently under 0.10 /kg following the current market expectations this will not change drastically until 2020. 

Whilst at the moment the environmental costs incurred as a result of commercial activity are not generally borne by the companies that cause them, this will almost certainty change as a result of carbon taxes, emission trading schemes and regulatory change. Flence the need for supply chain managers to think hard about... 

With estimated economic damage of about US 85 for each ton of carbon dioxide, capping greenhouse gas (GHG) emissions and putting a price tag on them becomes inevitable. Indeed, under the European Union emissions trading scheme (EU ETS), such a setup is already in effect for certain industries. Similar schemes are popping up across the United States in separate groups of states and in other major industrial economies worldwide. 

OECD/IEA, 2008. Climate Policy and Carbon Leakage. Impacts of tbe European Emissions Trading Scheme on Aluminium (lEA Information paper). 

On 8 July 2008, the European Parliament voted to expand the European Union Emissions Trading Scheme to cover aviation emissions from January 2012. What the EU ETS broadly proposes is that operators be allocated allowances each giving them a right to emit 1 tonne of carbon dioxide per year. The total number of allowances allocates a limit on the overall emissions from the activities covered by the Scheme. By 30 April each year operators must surrender allowances to cover their actual emissions. Operators can trade allowances so that emissions reductions can be made where they are most cost-effective. 

There is talk about carbon tax and cap-and-trade schemes. Essentially, a carbon tax is a tax on the carbon content of fuels—effectively a tax on the C02 emissions from burning fossil fuels. Thus, carbon tax is shorthand for carbon dioxide tax or C02 tax. 

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