Kyoto, emission trading

Russia, a developed country, is part of the Annex 1 bloc of countries committed to cutting emissions under the protocol. But its economy has shrunk so drastically since 1990 that it cannot afford to bum the fuel that would produce the emissions Kyoto entitles it to. Its emissions have fallen by almost 40% in a decade. So it favours emissions trading, selling its unused entitlement to developed countries wanting to emit more than the protocol allows them. Russia will ratify Kyoto, because it recognises it as a way of earning desperately needed money. It plans to use the cash for energy efficiency projects. 

Like any market, price is central and the key to prices is scarcity. The most fundamental difference between emissions trading and any normal market is that the amount available depends directly on government decisions about allocations. Recent events have underlined the need for robust allocation as the system moves into the Kyoto phase, and investors are already starting to look beyond that to the post-2012 period. Yet governments also have a duty not to undermine the competitiveness of their industries, and there are fears that the two aims could conflict. 

During 2006, the EU emissions trading scheme faces practical decisions in two key areas. The first is the allocation plans for the first Kyoto period of 2008-2012. The second is the conduct of a major review, to lay out options for continuing the system post-2012, and to signal how the Directive may evolve in that context. This part of the article addresses these two dimensions. 

If governments want to compensate investors for adjustment to regulation/legislation, this would motivate some free allocation of allowances during a transitory period to compensate investors who made investment decisions before there was any reasonable expectation of carbon controls. Different views exist about when this was. Most of those involved in the international process would argue it to have been 199017 or a couple of years thereafter.18 Later relevant landmarks include the adoption of the Kyoto Protocol in 1997, the EU s Green Paper on emissions trading in 2000, and the EU s ratification of the Protocol and adoption of the ETS Directive in 2002. Whatever year is considered applicable, however, as time passes fewer and fewer investments will be able to make the claim that costs were sunk before a reasonable expectation of carbon controls. 

Under the terms of the Kyoto Protocol a Party to it, i.e. a country, can in addition to undertaking emission cuts on its own territory outsource some reductions to other countries and gain credit in the form of various carbon currencies, most prominently certified emission reduction units (CERs) in the context of the Clean Development Mechanism (CDM), emission reduction units (ERUs) in the context of Joint Implementation (JI) and Assigned Amount Units (AAUs) in the context of International Emission Trading. 

The Kyoto target should be especially geared to domestic action rather than to the emissions credits from the Clean Development Mechanism (CDM) and Joint Implementation (JI) or the use of International Emissions Trading (IET) within the framework of the Kyoto Protocol. 

The bottom-up analysis (BAU forecast without emissions trading) led to projected annual 2005-2007 emissions of 39.3 Mt CO2 for the emissions trading sectors. As a comparison, the historical emissions in 2002 were 30.9 Mt, and in 2003 they were 36.6 Mt. On the basis of the considerations outlined above, it was decided that the following allocations for the first Danish NAP, covering the period 2005-2007, would be consistent with a path to Kyoto compliance ... 

In this context, pressures to implement greenhouse gas (GHG) mitigation measures have had a top-down character in that they originated from international agreements, the Kyoto Protocol, and the EU Directive on Emissions Trading. 

Generic term for the flexible mechanisms of the Kyoto Protocol bubbles, JI, CDM and international emissions trading Known planned development Member State of the European Union Megawatt thermal... 

Following on from Kyoto, the Fourth Conference of the parties took place in Buenos Aires in November 1998, the aim being to clarify key concepts and mechanisms. The most important of these was the clean development mechanism , which aims to channel funds into developing countries for the deployment of clean technologies. The carbon emission trading mechanism was also discussed. Through this, parties to the convention will be able to purchase permits, which on balance should lead to overall reductions in emissions. 

In addition, Article 17 of the Kyoto Protocol authorizes a target-based emissions trading system. The respective provisions need further elaboration. According to the Protocol, Annex B states parties may participate in emissions trading for the purpose of fulfilling their commitments under Article 3 of the Kyoto Protocol. The emission reduction units acquired will be credited to the acquiring State Party. The Conference of Parties under the Framework Convention is mandated to develop rules and modalities for emissions trading. 

Ellerman, A. D. (2005). U.S. experience with emissions trading Lessons for CO2. In Climate Policy and Emissions Trading After Kyoto, Bemd Hansjurgen, (Ed.), Cambridge University Press Cambridge, England. 

Ellerman, A. D. and Decaux, A, (1998). Analysis of Post-Kyoto CO2 Emissions Trading Using Marginal Abatement Curves, Report No. 30, MIT Joint Program on the Science and Policy of Climate Change Cambridge, MA. 

Concerns for global climate change have led to the European Emissions Trading Scheme and other policy measures that act in favor of nuclear new build by internalizing a key externality and rendering nuclear power more cost competitive. However, several measures at both an international and a national level either continue to exclude nuclear power (for example, Kyoto Protocol Clean Development Mechanism) or are reserved for renewables only (for example, UK Renewables Obligation Certificates). Such policies... 

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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