Global Carbon Trading Takes a Big Step Forward
It has often been pointed out that our modern world could quickly become cleaner, safer, and more sustainable if only externalities, such as air pollution or carbon emissions, were internalized, so that they could be captured and factored into the economic equation. Then, as the argument goes, free market forces would provide the needed behavioral reforms and technological innovations.
Efforts to do this with greenhouse gases, so far, have had mixed results. The effectiveness of these market-driven programs depends largely on the actual price of carbon, which at present is very low, because of the fact that there is no uniform global carbon trading system, only a patchwork of individual countries. This creates fairness problems when countries that have regulations do business with countries that don't. This so-called carbon leakage will always occur to some extent until there is a truly global carbon emissions agreement.
That is why the announcement last week, that Australia was going to link up their emissions trading system with the EU's emissions trading system (ETS), is so important. It represents a major step towards the establishment of a global system. With international climate negotiations now occurring in Bangkok, talks are reportedly underway with California, South Korea, and Switzerland to form a similar agreement.
The European Union's ETS, which began in 2005, is the biggest program by far, operating in 30 countries and covering power stations, oil refineries, iron and steel works, cement plants and more. It is a cap and trade plan which puts a limit on the total amount of GHG emissions (the cap), and then divides that amount into shares (known as allowances) which can be bought, sold or traded. If a company does not have enough allowances to cover their emissions, they must purchase more allowances from others or pay a substantial fine. Companies with lower emissions can sell their allowances or trade them on the open market. The number of allowances is reduced each year. According to this scheme, EU emissions in 2020 will be 21 percent lower than 2005.
Article continues at ENN affiliate, Triple Pundit
Factory Smoke image via Shutterstock