Carbon Emissions Trading

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Carbon emissions trading

Carbon emissions trading (CET) is a practice allowing coun
tries—and corporations—to trade their harmful carbon emissions for credit to meet their designated carbon emission limits. Most developed countries approved this system in 1992 when the United Nations Framework Convention on Climate Change (UNFCCC) was presented. The document provided for limits on greenhouse gas emissions in an attempt to stem the determination of climate change around the world. TheUnited States as of 2001 had backed away from the Kyoto Treaty stating similar restriction but would remain obligated in some regard to the UNFCCC. At least in theory, CET allows one country who might not be maintaining their target to trade credits with others that are well under theirs.

According to information from the Australian Academy of Science, in Nova: Science in the news, carbon dioxide (CO2) is known as a "greenhouse gas" ones that came out of the Earth's crust before life was known to begin, helping to stabilize the earth's temperatures in order to sustain life. The "greenhouse effect" occurs when the sun's heat energy passes through the atmosphere and warms up the earth with no interference. The Earth then radiates that same energy back into space. Other greenhouse gases include, water vapor (the primary greenhouse gas), methane , ozone , carbon monoxide , and nitrous oxide . All of these absorb part of this energy and send it in all directions—including the Earth. By the twenty-first century however, the emissions of greenhouse gases were not in the balance they had been for ages due to human activity, particularly that of burning fossil fuels such as coal , oil, and natural gas . Due to that, and to industrial development as well as residential development in the developed countries, forests were cleared at such a rate that inclined some scientists to wonder whether these practices were harmful in the significantly increased emissions of greenhouse gases.

The Environmental Protection Agency (EPA) launched a method of emissions trading known as, Online Allowance Transfer System (OATS). It is an online system that allows companies engaged in the sulfur dioxide and nitrogen oxide to record trades directly through the internet without having to file papers with the EPA. No such method yet exists for CET. In view of possible future issues regarding the trades in the United States in February 2002, Senators John McCain (R.-Ariz) and Sam Brownback(R.-Kan.) jointly introduced legislation that propsed establishing a national voluntary registry for companies to register carbon emission reductions. According to Coal Age "The propsal is a step toward developing a 'cap-and-trade' carbon emissions control program." Senators McCain and Leiberman (D.CT) are also working on legislation that supports carbon emissions trading. McCain, noted Coal Age said that, "The registry would support current voluntary trading practices in private industry and other nongovernmental organizations."

The real issue that has resulted from CET is the trading market that has emerged. Opinions are varied regarding the advisability, and inherent dangers of CET. The International Carbon Bank & Exchange offered insight on CET through its web site. "Emissions trading reduces costs by allowing a field of players to achieve emissions redutions using market mechanisms. Over time, these mechanisms will drive emissions down and finance the shift to clean energy."

In August 2001, the Joyce Foundation granted $760,100 to fund the design phase of the Chicago Climate Exchange (CCX). The grant was actually directed to the J. L. Kellogg Graduate School of Management at Northwestern University in support of the work being done by Dr. Richard Sandor, an internationally-known trader. With the presidential administration of George W. Bush hesitant to apply a "cap-and-trade" system, the direction of the CCX and open market trading is viewed as providing a desirable alternative—particularly in light of the United States withdrawal from the Kyoto Treaty. According the Environmental News Network (ENN) in an article on the new design program, "The CCX's stated goal is to reduce participants' greenhouse gas emissions by five percent below 1999 levels over five years. By comparison, the countries that ratified the Kyoto Protocol must reduce emissions of carbon dioxide to an average of 5.2% below 1990 levels during the five-year period 2008 to 2012." By November 2001, the cities of Chicago and Mexico City announced their participation in CET by joining the CCX, with Chicago becoming the first American city to do so. Chicago's Mayor Richard Daley became honorary chair of the exchange, still in the design phase. He noted that, "For years our financial exchanges have been a vital parto f the local and naitonal economy. This is a good example of the kind of innovation that will help us solve our energy and environmental problems," according to the Environment News Service. Other businesses and agencies participating in the design phase of the CCX including, Agrilance, a partnership of agricultural producer-owners, local cooperatives and regional cooperatives; BP; Cinergy; Ducks Unlimited ; DuPont; the energy company, Exeton; International Paper; the Iowa Farm Bureau Federation; Manitoba (CA) Hydro; National Council of Farmer Cooperatives; PG&E National Energy Group; Suncor Energy; Swiss Re, a reinsurance firm; The Nature Conservancy ; and, Waste Energy.

On a broader scope of international trading, however, the United States' withdrawal from Kyoto was posing a possible problem. Due to the lack of participation, U.S. companies were seeing a possible short-term advantage in international business competition due to lower costs without the emissions trading—but those same companies, such as DuPont, already cutting emissions, might face the long-term shortchange depending on which way the international climate change policy could effect trading those emissions. In March 2002, Julie Vorman writing on the CET market for Reuters quoted Eileen Claussen, president of the Pew Center on Global Climate Change, noting that, "Despite the United States inaction, it is abundantly clear that we are beginning to see the outlines of a genuine greenhouse gas market." Also, according to Vorman, "The Pew Center report said more than 65 trades of greenhouse gas emissions totaling 55 million to 77 million tons have occurred over the past five years [since the 1997 Kyoto Protocol was introduced] but that those gifures probably underestimate the market activity. The emissions reductions traded for between 60 cents and $3.50 (U.S. dollars) per ton of carbon dioxide equivalent. (The date did not include trades within BP Pic and Royal Dutch Shell, which launched their own internal cap-and-trade programs in 1998 to cut emissions.)

The role of the agricultural industry in CET was being explored along with its options with the CCX. According to the American Farm Bureau, one of the plans under consideration was a plan to pay farmers for agricultural practices reducing carbon emissions into the atmosphere. "Farmers would be compensated for implementing or continuing practices that reduce carbon emissions from the soils. Such practices include reducing tillage, conserving tillage, retiring cropland, fertilizing with livestock manure, decreasing methane and reducing energy use. The compensation could potentially come from the government or companies that are interested in "trading" carbon credits." The Kyoto Protocol does not provide that option; but the Untied States wanted to consider it as a part of the UNFCCC. Jon Doggett, a senior director of governmental relations for the American Farm Bureau Federation (AFBF) added the caveat that such a practice of carbon sequestration in the soil—a practice some Americans support in opposition to European leaders who do not have the amount of land for such a program to succeed as does the United States—could be harmful to farmers in the long-term. Doggett noted that, "The industries that will be required to purchase the carbon credits supply farmers with vital operating materials, including fuel and fertilizer .As regulatory costs for companies rise, farmers will pay for that as fuel and fertilizer costs go up. The AFBF also pointed out that such storage might disrupt other environmetally beneficial practices—such as that employed by California producers after harvest when they flood their land and provide a habitat for geese and ducks. The issues of trading the benefits of one environmental concern for that of another would remain a matter of debate well into the century, no doubt.

Environmentalists continued to express concern that CET practices, particularly ones that were regulated voluntarily on the open market, would not reduce the greenhouse gases to the extent that some scientists thought crucial to the planet's optimum survival. The ongoing debate on the theory of global warming raged on in the United States particularly. Business and industrial interests questioned the soundness of the theory, and worried that it would create serious obstacles to profits that might be translated into the research necessary for better energy alternatives. Those supporting the theory were concerned with declining standards for pollution controls that might enhance the greenhouse effect . The voluntary controls industry and countries would place on themselves were nonetheless considered the first step to creating a cleaner environment .

[Jane E. Spear ]

RESOURCES

BOOKS

International Carbon Bank & Exchange. About Emissions Trading. "Emission Reduction Credits & Trading." (June 2002). <http://www.icbe.com/>.

OTHER

Australian Academy of Science. Nova: Science in the News. "Carbon currency—the credits and debits of carbon emissions trading." (June 2002). <http://www.science.org.au/>

Chicago Climatex. Emissions Trading. (June 2002). <http://www.chicagoclimatex.com/>

Coal Age. Primedia Business Magazines. "McCain, Brownback Move on Emissions." Feb. 1, 2002. <http://www.industrycli.../>

DMOZ. Open Directory. "Emissions Trading." April 16, 2002. <http://www.dmoz.org/Science/Environment/>

Earth Council. Carbon Trading: A Market Approach to the Environmental Crisis. July 1997; (June 2002). <http://www.igc.apc.org/globalpolicy/> Environmental News Network. Trading for clean air just got easier. December 5, 2001. <http://www.enn.com/>

Environmental News Network. First U.S. Carbon Trading Market Enters Design Phase. August 8, 2001. <http://www.enn.com/>

Environment News Service. Environment. "Carbon Trading Market Expands to Chicago, Mexico City." November 13, 2001. <http://www.ens.lycos.com/ens/>

Eye for Energy. CO2 Trading: The North American Market. "Opportunities, compliance and profit in domestic and international greenhouse gas emissions trading." June 2002. <http://www.eyeforenergy.com/>

Farm Bureau. Global Climate Change. "Agriculture's role discussed in carbon trading." June 22, 2000; (June 2002). <http://www.fb.com/>

Houlder, Vanessa. FT (Financial Times). "US opposition to Kyota may sink carbon trading." August 13, 2001. <http://news.ft.com/>

Vorman, Julie. Reuters. "Greenhouse trading takes off, U.S. on sidelines." March 20, 2002). <http://www.enn.com/news/wire-stories/>