Awareness and struggle against the climate change has picked up a great pace in past 2 decades and checking greenhouse gas emissions like CO2, is regarded as pivotal component in the struggle against climate change. As such, among various ways perceived to accomplish this task, carbon trading has been a globally popular one, which is a market based framework unrolling economic incentives to enterprises and countries to help them control their environmental footprint.
Not mincing words, but almost every activity in human sphere, from travelling (on roads, in sea and aviation) to farming to manufacturing and even as you read this article, contributes to emission of gases which leads to greenhouse effect and thus, reasonably factors in climate change.
To reduce carbon footprint, there are voluntary offsets as environment-conscious consumers compensate companies for an array of climate-friendly activities, such as reforestation, which soak CO2.
Then, we have carbon trading scheme with full legal backing as such are largely authorized and implemented by governments and policy-makers, under which enterprises that produce carbon are scanned and total emissions are capped and allocated a certain amount of emissions to such groups which they can trade and therefore the term “cap and trade”.
Needless to say but with all cap and trade framework, emissions limits are attached as are decided by governments and policy makers and which are in-line with the targets set to check the environmental damage.
As such, maximum number of carbon units (allowance) are calculated and allocated to companies emitting carbon, which they are entitled to trade in a market specifically meant for this.
The credit ranges from $12 to $125 per a ton of pollutants released during operational activities. As for the price of carbon, such is decided on the basis of demand and supply, where supply of units is kept at a palatable level with the objective of encouraging companies to look for various green ways of production, so as to reduce pollution eventually.
In other words, business enterprises with mega buble of carbon emissions are allocated an allowance which, as a unit, can be traded while taking efforts to reduce emissions.
Now, if an enterprise realizes that it has crossed over the permitted limit, they will need to buy more carbon units from such carbon market. However, it they adhere to certain measures to reduce emissions and are left with some surplus units, they can sell.
In the backdrop of current global warming and climate change, this is a must have document to the businesses which emit carbon in a large quantity during their operations, such as manufacturing units, rubber industries, aviation etc.
Even though, carbon trading appears to be a mega concept but in reality, such is pretty complicated to be put into practice.
In climate change, has emissions trading proved to be successful mechanism or does it play a crucial role in climate change?
Clearly, emissions trading has been hailed as integral to the collection of efforts put to bring greenhouse gas emissions down, which are essentially man-made and which push climate to take deadly change or simply which results in climate change. Furthermore, determination of caps falls inline with the scientific research and analysis of required amount of emissions cut meant for climate change and to meet targets set in Paris Agreement are also considered, which are about keeping the surge in temperature well below the 2 degree Celsius about this century. As for the significance of emissions trading system, European Union terms it “a cornerstone of its climate change policy while the system prevails to be the largest in European Union frontiers. More so, to all the glorious efforts put in the past, in bringing down emissions, this system gathers much of the credit and there are phenomenal achievements in the year 2020 as well, as emissions from sectors that it included, were lower than that of 2005.
Besides, cutting-edge innovation has been looked for and brought-in in low carbon frameworks, thanks to EU emissions trading systems. For instance, renewable power sources and energy efficiency has been among the prime objectives of the system. Arguably, when such technologies will be put more into use, greenhouse gas emissions will be checked.
Are there any negative impact of emissions trading on economy?There has been an argument that gathers momentum that the enterprises partaking in the scheme may lose business ground to those competitors that don’t become a part of it and are thus, not covered by any regulations or who are with lower costs. But, on the contrary, keeping EU ETS in view, research indicates that thin evidence to establish any financial jolts.
Which of the countries have picked up pace with such emissions trading systems ?
As highlighted above, European Union emissions trading system or simply put, EU ETS is termed as the biggest framework of such type in the world as all countries falling within EU, 28 in number, are participating members to it. In these countries, emissions from over 11,000 units, which are heavy consumers of energy such as power stations and industrial plants as well as the airlines that operate among the ETS member countries, have been put limits upon. On the whole, 45% of greenhouse gas emissions from EU are checked through this scheme.
Going by the report published by World Bank’s State and Trends Of Carbon Pricing in May 2018, there are many carbon pricing initiatives across the world, say 51 in number which have been either implemented or are scheduled. There are included ETSs in Switzerland, South Korea, New Zealand and many states in US and provinces in Canada alongside the provision for carbon taxes levied on national level. As for global emissions, estimates are given by International Carbon Action Partnership (ICAP) showing that emissions trading now covers 15% of it.
In case of China, which is a manufacturing hub of the world that certainly qualifies it to be among the member nations, there has been launched a mega scheme for emissions trading in 2017 following the outcome of a handful of pilot schemes which were launched on local level. They had set the year 2020 to primarily target the energy sector to emerge as the biggest ETS on the planet. Not surprisingly, owing to clear intention and scale, the scheme won massive appreciation from every global quarter and hopes afloat that China’s emissions begin to decline after 2030.