Emissions Trading Programs as a Means of Term Paper

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Emissions trading programs as a means of achieving targets under the Kyoto Protocol

The global problem of climate change is becoming increasingly apparent as populations and economies grow worldwide. The build-up of greenhouse gases (GHGs) in the atmosphere is cited as a prominent cause of climate change. There is a correlation between elevated concentrations of GHGs in the atmosphere, especially carbon dioxide (CO2), and global warming, which leads to extreme weather events such as droughts, floods, and melting of polar ice caps.

There is an international recognition of the immediate need to reduce GHGs and remedy the problem of global warming. The Kyoto Protocol was established in December 1997 as an agreement between over 160 countries to set targets for the reduction of GHGs, and determined available options to achieve them. The Protocol includes three Kyoto Mechanisms, which are three market-based instruments that enable nations to but or earn credits on an international scale. These mechanisms are the Clean Development Mechanism, Joint Implementation, and International Emissions Trading (IET). Developed countries that have accepted a Kyoto target throughout the world are developing emissions trading programs in order to achieve these targets in a cost-effective manner.

In emissions trading, firms or organizations can buy or sell permits for emissions, or credits for reductions of emissions, of particular pollutants. Emissions trading requires that many buyers and sellers congregate to trade the commodities of emissions allowances or emissions reduction credits. International Emissions Trading is considered to be a significant method of minimizing the overall costs involved in the reduction of GHGs.

Upon commencement of an emissions trading program, parties are allocated a certain amount of emissions, and governments may either auction these permits or provide them for free. The total sum of permits available corresponds directly to the nations emissions reduction targets. Parties that are successful in reducing emissions below permitted levels may sell unused permits to parties that have not reduced emissions below permitted levels. It may be more cost effective in some cases for parties to initially buy some unused permits rather than investing in new technology necessary to reduce emissions.

Over time, governments reduce the number of permits available, and the market for auctioned or unused permits becomes increasingly costly. Therefore, parties recognize that investment in clean-up technologies is more feasible than purchasing permits for emissions. During this process emissions are reduced, and parties that are successful in reducing emissions do not need to purchase auctioned permits and in fact profit from the sales of unused permits. The option of emissions trading also gives parties time to update their operations and invest in clean technologies. Evidence from emissions trading programs implemented in the United States indicates that this mechanism is an effective, cost effective means of reducing emissions.

Nations throughout the world are taking steps to develop effective emissions trading programs that are compatible with the International Trading rules under the Kyoto Protocol. These programs are designed to aid in the achievement of set out emissions reduction targets. The following outlines different nations' experiences with and progress on emissions trading as reported at http://www.ntree-trnee.ca/EmissionsTrading.

European Union

Fifteen members of the European Union (EU) have agreed to a joint emissions reduction target under the Kyoto Protocol. These member states will reduce GHG emissions by 8% of 1990 levels by 2012. The EU has developed a "burden sharing" agreement to assign the responsibilities involved for achieving the emissions reduction target, and have also proposed the implementation of an emissions trading program that will come into effect in 2005. This trading scheme will be compatible with International Emissions Trading rules under the Kyoto Protocol. Member states are responsible for distributing permits to parties, and the number of permits available will be reduced over time. Parties that fail to produce sufficient permits or credits to cover emissions will be responsible for paying a penalty charge.


Under the Kyoto Protocol, Norway has committed to limit the increase in its GHG emissions to 1% above 1990 levels for the first commitment period between 2008 and 2012. A 17% reduction in GHG emissions as compared to usual scenario is required to reach the Kyoto target. An emissions trading program is one of the most important instruments aiding Norway in making progress in the reduction of GHGs by 2005. Norway's emissions trading plan will by fully operational by 2008. This emissions trading program is compatible with Kyoto mechanisms, regulates four GHGs under the Kyoto protocol, which made up for 80%…

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