Carbon emission trading

Carbon emissions trading is emissions trading specifically for carbon dioxide (calculated in tonnes of carbon dioxide equivalent or tCO2e) and currently makes up the bulk of emissions trading.

It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce carbon emissions and thereby mitigate global warming.

Units HArba..

The units which may be transferred under Article 17 emissions trading, each equal to one metric tonne of emissions (in CO2-equivalent terms), may be in the form of:

* An assigned amount unit (AAU) issued by an Annex I Party on the basis of its assigned amount pursuant to Articles 3.7 and 3.8 of the Protocol.
* A removal unit (RMU) issued by an Annex I Party on the basis of land use, land-use change and forestry (LULUCF) activities under Articles 3.3 and 3.4 of the Kyoto Protocol.
* An emission reduction unit (ERU) generated by a joint implementation project under Article 6 of the Kyoto Protocol.
* A certified emission reduction (CER) generated from a clean development mechanism project activity under Article 12 of the Kyoto Protocol.

Transfers and acquisitions of these units are to be tracked and recorded through the registry systems under the Kyoto Protocol.

Market trend

Carbon emissions trading has been steadily increasing in recent years. According to the World Bank's Carbon Finance Unit, 374 million metric tonnes of carbon dioxide equivalent (tCO2e) were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO2e)[which was itself a 41% increase relative to 2003 (78 mtCO2e).

Business reaction

With the creation of a market for mandatory trading of carbon dioxide emissions within the Kyoto Protocol, the London financial marketplace has established itself as the center of the carbon finance market, and is expected to have grown into a market valued at $60 billion in 2007. not in citation given The voluntary offset market, by comparison, is projected to grow to about $4bn by 2010.

Twenty three multinational corporations came together in the G8 Climate Change Roundtable, a business group formed at the January 2005 World Economic Forum. The group included Ford, Toyota, British Airways, BP and Unilever. On 9 June 2005 the Group published a statement stating that there was a need to act on climate change and stressing the importance of market-based solutions. It called on governments to establish "clear, transparent, and consistent price signals" through "creation of a long-term policy framework" that would include all major producers of greenhouse gases. By December 2007 this had grown to encompass 150 global businesses.

Business in the UK have come out strongly in support of emissions trading as a key tool to mitigate climate change, supported by Green NGOs.

Moral tradeoff

With carbon emission trading, there is the rarely discussed concern of moral tradeoff. The idea is exemplified in the study, "A Fine is a Price", conducted by Uri Gneezy and Aldo Rustichini with a selected group of Haifa childcare centers in Israel. The study showed that monetary fines on late-coming parents did not deter the tardy habit and instead, created an unexpected economic and moral tradeoff for the late-coming parents as they could now compensate for their tardiness under the new fine system.

However, this analogy does not take into account an important distinction between late fees at childcare centres and cap-and-trade emissions reduction schemes: the price paid by a late-coming parent has no impact on the price to be paid by other late-coming parents. That is, there is no bidding system in place where parents compete for the right to arrive late. This contrasts with an emissions trading scheme, where one firm's willingness to pay for carbon emissions reduces the number of permits available to other emitters, thereby increasing scarcity and hence the price of carbon pollution.

From http://en.wikipedia.org/