Emission Trading Schemes Essay Example | Topics and Well Written Essays - 1750 words

Emission Trading Schemes - Essay Example1.Emissions commerce has emerged over the stomach two decades as the preferred environmental policy tool. The key advantage of emissions trading is that firms dejection flexibly choose to meet their targets, rather than use influence technologies or standards - i.e., command-and-control policies. Emissions sources with low-cost reducing opportunities can over comply and sell their additional allowances to sources where reductions would be more difficult and costly. This leads to the lowest overall cost, or virtually economically efficient solution. Emissions trading is particularly pertinent to climate change mitigation as carbon dioxide (CO2) and other green-house gases (GHGs) have the same effect wheresoever they are emitted and compliance costs differ dramatically across sources. Hence there is considerable scope for trading, and opportunity for considerable gains from these trades. Experience in the coupled States and other countries have shown that well-designed emissions trading programs can reduce environmental policy costs by as much as 50%. 1.The origins of the EU-ETS date stand to 1992 when 180 countries signed the United Nations Framework Convention on Climate Change (UNFCCC). Following negotiations under this agreement, the Kyoto Protocol was signed in 1997, committing the industrialized nations to an averaged 5.2% reduction from 1990 levels by the first commitment period in 2008-2012.The EU-ETS officially began on January 1, 2005 and consists of a warm-up phase from 2005-2007 and then successive 5-year periods, with the second phase from 2008-2012 mickle to coincide with the Kyoto compliance period. Six key industrial sectors are covered, notably electricity and heat production plants greater than 20MW capacity. Other included sectors (with specific eagerness size thresholds) are oil refineries, coke ovens, metal ore and steel installations, cement kilns, glass manufacturing, ceramics manufacturing, and paper, pulp and board mills. These sectors are likely to account for around 12,000 installations (depending on the final details of the specification process), and represent close to half of the total CO2 emissions from the EU-25 countries. Participating companies are allocated allowances, each allowance representing a ton of the relevant emission, in this case carbon dioxide equivalent. Emissions trading allows companies to emit in excess of their allocation of allowances by purchasing allowances from the market. Similarly, a company that emits less than its allocation of allowances can sell its surplus allowances. 1.Monitoring and reporting of an installations emissions are carried out based on binding EU-wide guidelines mainly through fuel purchases and use of emissions factors, although continuous observe and third party verification are allowed. All self-reported emissions must be verified by an independent third party (similar to an auditor reviewing a firms monetary ac counts). 2.Methodologies are under development to allow inclusion of additional sources, greenhouse gases and emissions factors. Hefty fines exists for non-compliance (40 Euro/TCO2 from 2005-2007, then 100Euro/TCO2 from 2008 onwards), levels that are considerably higher than most predictions of allowance prices. 3. notwithstanding though the EU ETS will ultimately be judged on the basis of its effectiveness as a tool to reduce GHG emissions, the underlying rationale for choosing emissions trading was based on economic