Sceptre International Group Limited – Understanding an Emissions Trading Scheme

How long have emissions trading schemes also known as (carbon trading schemes) been in existence and how many countries currently have one are aspects of global warming not often discussed in the media.  With the issue of global warming on almost everyone’s mind these days this article will explain the origins of carbon trading schemes (CTS) and how they work.

The concept of carbon trading is not new and dates back to the United States in the 1990s and the concern about how to deal with a problem known as acid rain and smog (sulphur dioxide in the atmosphere) caused by the burning of coal in power stations.  At the time a preference was shown in favour of a CTS rather than regulation of individual power stations that could have put constraints on level of emissions.  It was seen as having been largely effective for dealing with the problem of acid rain and is now being adopted to deal with global warming.

In short, the word carbon does not simply mean emitting carbon as in carbon monoxide pollution from automobiles, factories and coal or oil fired power stations which is a poisonous gas.  Instead, it mainly involves restrictions on emitting carbon dioxide (greenhouse gas), which is a gas required for the existence of all life on earth but in higher levels has been linked to warming of planet earth.  

The idea of trading in carbon is that individual countries set up a market for carbon thereby requiring emitters (business and industry) to purchase carbon permits for the right to emit greenhouse gases.  Targets for lowering greenhouse gas emissions are set by government and all emitters, mainly industrial, are then usually required by law to use cleaner technologies as part of lowering their emissions.

There are a number of countries with CTS regulations in place. The largest of all carbon schemes  is the one operated since 2005 by the European Union (EU).  The United Kingdom, Japan, New Zealand and some state governments in the United States also have schemes in place.

Is a carbon trading scheme the only real option?  No.  The alternative that is often considered is a carbon tax.  Either way, by putting a price on carbon governments are putting a cap or restriction on level of carbon emissions in the atmosphere.  But there is a fundamental difference in how both concepts work.  In the case of a carbon tax, a fixed charge is applied to each tonne of carbon dioxide emitted.  The idea is this allows the market to decide the appropriate level of emissions and the appropriate cost.  In the case of carbon trading, it applies a fixed level of emissions and then leaves the market to decide the level of cost needed to meet this constraint.

How effective have existing carbon trading schemes been and have they been costly in terms of weakening economies and destroying jobs?  This is a difficult question to answer.  It depends somewhat on the definition of what is considered successful.  It also depends on the industries that drive a country’s economy.  Very few, if any, countries that have introduced a CTS appear to have consistently met their emission reduction targets, and as with any form of trading scheme or tax, there are ways that some industries may be able to manipulate the system.

Spain has found that its economy has suffered high unemployment and some industry has moved offshore.  However, the Spanish economy has been weak for some time and how much a CTS has contributed to these problems – through higher energy costs – is hard to say.  Spain also relies on higher cost wind and solar renewable sources of energy more than, for example, France does under a CTS.  France has a long history of nuclear power generation and has continued to opt for this path more than solar or wind energy alternatives.

At this stage, the countries most reluctant to embrace a CTS at a national level  are currently the United States, China, Russia, India and Australia.  Australia’s main concern appears to be the affect the CTS could have on its mining industry. Nevertheless, most economists and scientists appear to agree on the need for a CTS so ultimately most countries will most likely introduce one at some time in the future.

Read more: www.articlesbase.com/environment-articles
Under Creative Commons License: Attribution

Sceptre International Group Limited is a specialist investment firm focused in low carbon financial investments such as sustainable biofuel plantations, agricultural farmland and green technologies.
Sceptre International’s talented team of professionals will be happy to talk through all investment opportunities with you and build a winning portfolio for the future.
Visit www.sceptreinternational.com for more information.

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