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How the World is Responding
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Scientists concur that a major reduction in global carbon emissions of 60% or more is needed within the next 30 to 40 years to stabilize global warming at levels which do no threaten the stability of our economic, social, and environmental systems. This consensus is strengthening at a time when global emissions are growing at their fastest rate ever.
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The obvious solution is to dramatically reduce our dependence on fossil fuels. But the vast majority of our power stations, businesses, cars, homes and aircraft are currently dependent on fossil fuels. Without major shifts in our patterns of production and consumption, they will not be replaced with renewable alternatives within the next few decades.
Responses to this enormous challenge are divided between those driven by regulation (mandated by governments) and voluntary actions which go beyond or pre-empt regulation. The CarbonNeutral Company has been leading the way in voluntary action on climate change for businesses, Governments and individuals for over 10 years.
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The Kyoto Protocol
The Kyoto Protocol of The United Nations Framework Convention on Climate Change (UNFCCC - http://unfccc.int) is the foundation of most regulatory initiatives to control climate change. Ratified by 186 countries (September 2008), the Protocol is a legally binding treaty committing industrialized countries to reduce their collective greenhouse gas emissions to 5.4% below 1990 levels by 2012.
The Protocol provides three flexibility mechanisms which give the participating nations cost-effective means to achieve their targets. These are:
1. Emissions trading. This enables participating countries with emissions targets to purchase carbon savings from one another in order to fulfill their Kyoto commitments.
2. Joint implementation (JI). This allows developed countries to purchase carbon credits from GHG reduction projects implemented in another developed country or in a country with an economy in transition (the former communist countries of Eastern Europe). Emission reductions from JI projects are called Emission Reduction Units (ERUs).
3. Clean Development Mechanism (CDM). This is another project-based transaction system enabling industrialized countries access to carbon reductions by financing carbon reduction projects in developing countries. Carbon savings from CDM projects are traded as Certified Emission Reductions (CERs).
Australia and the United States were the only industrialized countries that chose not to ratify the Kyoto Protocol. In December 2007, following a change of government, Australia reversed its original decision and ratified the Kyoto Protocol. Despite remaining outside the Kyoto system, many states and regions in the USA have started to design cap and trade regimes, which will come into force over the coming 3-5 years. The key ones are dealt with in more detail below.
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The Rationale Behind Carbon Trading
Free market systems work efficiently when the full cost of goods and services are known and factored into their price. Market systems fail when goods and services are not correctly priced. Until recently, our economic system has not been able to price the value of our stable climate because there has been no economic value for a unit of GHG emitted to the atmosphere. When units of pollution (e.g. tonnes of carbon dioxide emitted to the atmosphere) are translated into units of property (emission reduction units or carbon credits), carbon emissions trading can be used to more properly price the value of a stable climate within the free-market economy.
Over the longer term, progress towards a stable climate requires new low- and no-carbon technologies. We need to invest in the research required for their commercial development. And we need to create strong market demand or pull for these new, and sometimes more expensive technologies. To allow them take root, it must be more expensive to emit greenhouse gases than not. That is where carbon trading has a key role to play. By including the price of GHG emissions in our market system, we encourage better informed decisions about when to invest in new technologies that avoid the ‘costs of carbon’.
Carbon markets make it possible for organizations in one part of the world to exchange carbon credits with another in a different zone. Considering the nature of climate change – a global rather than local problem that is not affected by the physical location of the source of emissions - emissions trading is a powerful tool to tackle the challenge. Once markets take shape, emitters have the option to reduce emissions internally at source (for example by investing in energy efficiency measures, new technologies or processes), or to purchase emission reductions (carbon credits) from companies or countries that have undertaken similar activities if this is a cheaper option. In this way, the market is used to seek out the next most cost-effective emission reduction.
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The Emerging Regulatory Regime in the USA
Despite currently sitting outside the Kyoto process, a number of regional cap-and-trade systems are under development. Companies with operations in multiple regions face significant costs in complying with separate systems, each using different carbon instruments and each with its own particular rules. They would much prefer a single nationwide (or even global) system, which allowed them to optimise their compliance on a global rather than local basis. It is therefore expected that over time these regional agreements will coalesce into a single scheme with national coverage – or at minimum be linked through one or more common compliance instruments. The key regional agreements are set out below :
The Regional Greenhouse Gas Initiative (RGGI) : The first mandatory scheme introduced in the USA – signed by the founding states in April 2003 and running from 1st January 2009. The scheme covers CO2 emissions only from the power generation sector in the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, New Jersey and Vermont. The 1st compliance period (2009-2014) sets a cap at 4% above the emissions for the period 2000-2002 with the cap then decreasing by 2.5% per year thereafter.
The Western Climate Initiative (WCI) : This is an agreement involving increasing numbers of states across North America, including the USA, Canada and Mexico. As at October 2008, Arizona, California, Montana, New Mexico, Oregon, Washington, Utah, British Columbia, Manitoba, Ontario and Quebec were all members. Alaska, Colorado, Idaho, Kansas, Nevada, Wyoming, Saskatchewan, Baja California, Chihuahua, Coahuila, Nuevo Leon, Sonora, Tamaulipas are currently observers. The agreement will run from 2012 to 2020 and represents a 15% cut in all 6 greenhouse gases compared to 2005 emissions by 2020. All sectors are covered with a minimum size threshold of 25,000tCO2e.
The Mid-West Regional Greenhouse Gas Reduction Accord (MWRGGRA) : This is the most recently signed agreement (November 2007) and the details of how it will work have not yet been published. It will cover all 6 greenhouse gases and the initial member states are Illinois, Iowa, Kansas, Minnesota, Wisconsin and Manitoba, with Indiana, Ohio and South Dakota as observer states.
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Perspectives on Key Issues
About Climate Change:
www.metoffice.com/research/hadleycentre/ : The UK’s Met Office Hadley Centre for Climate Change provides a focus in the UK for the scientific issues associated with climate change.
http://epa.gov/climatechange/ : The US EPA's Climate Change Site offers comprehensive information on the issue of climate change in a way that is accessible and meaningful to all parts of society – communities, individuals, business, states and localities, and governments
www.bbc.co.uk/climate/ : The British Broadcasting Corporation’s Weather site for Climate Change provides evidence and impacts of climate change and how society can adapt to it.
www.tyndall.ac.uk : The UK’s Tyndall Centre brings together scientists, economists, engineers and social scientists, who together are working to develop sustainable responses to climate change through trans-disciplinary research and dialogue on both a national and international level
www.realclimate.org : A climate science blog by climate scientists
About Carbon Markets:
www.ecosystemmarketplace.com is a leading source of information on markets and payment schemes for ecosystem services, and author of ‘Voluntary Carbon Markets: An International Business Guide to What They Are and How They Work, Earthscan, 2007 and also 'State of Voluntary carbon Markets 2008', which is available to download via the website
www.carbonfinance.org : The World Bank Carbon Finance Unit publishes an annual review of carbon markets. The last was Capoor, K. and Ambrosi, P. ‘State and Trends of the Carbon Market 2007’, World Bank, Washington DC published in May 2008, available through the website.
www.pointcarbon.com is an advisory and information service which provides daily information covering developments in climate change and carbon markets.
www.carbonfinance.com publishes Carbon Finance, a monthly newsletter and e-mail update service providing in-depth coverage of the global markets in greenhouse gas emissions.
Dissenting views:
http://www.thecornerhouse.org.uk The Corner House produces a wide range of briefings and documents on topical environmental and social justice issues. It has published a number of papers critiquing the value and ethics of carbon trading and carbon offsetting. See for example, ‘Carbon Trading: A Critical Conversation on Climate Change, Privatisation and Power’ Larry Lohmann, October 2006.
www.lomborg.com is the home site for Bjorn Lomborg author of ‘The Skeptical Environmentalist: Measuring the Real State of the World’ 2001 in which he challenges widely held beliefs that the global environment is progressively getting worse.
http://en.wikipedia.org/wiki/James_Lovelock is the Wikipedia site where the work of celebrated scientist, Dr James Lovelock is reviewed. Lovelock published The Revenge of Gaia: Why the Earth Is Fighting Back - and How We Can Still Save Humanity in 2006, making the case that it is too late to avoid significant global heating and significant climate change, predicting that much of the Earth's surface will be less hospitable for humans. As a result, there will be inevitable, major decline in the human population over the next hundred years.
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