03 December 2011
Carbon trading schemes around the world: An overview

Companies and governments around the world are turning to emissions trading as a weapon to fight climate change and join a global carbon market worth $142 billion last year.

Under cap-and-trade schemes, companies or countries face a carbon limit. If they exceed the limit they can buy allowances from others. They can also buy carbon offsets from outside projects which avoid greenhouse gas emissions, often from developing countries.

Following is a list of established and emerging schemes:

ESTABLISHED SCHEMES:

1. Kyoto Protocol:

Mandatory for 37 developed nations, excluding the United States which never ratified the pact.
Launched: 2005 Covers: All six main greenhouse gases. Target: Five percent average cut in 1990 emissions in 2008-2012 first phase.

How it works: Rich countries cut greenhouse gases at home or buy emissions rights from one other — if one country stays within its target it can sell the difference to another emitting too much. Or they can buy carbon offsets from projects in developing countries under Kyoto's clean development mechanism.

The present round of the Kyoto Protocol expires in 2012 and the future of the scheme after that date is still uncertain as U.N. climate talks flounder.

2. European Union Emissions Trading Scheme:

Launched: 2005 Covers: Nearly half of all EU carbon emissions. Mandatory for all 27 EU members, plus Iceland, Liechtenstein and Norway.

Target: 21 percent cut below 2005 levels by 2020 How it works: Member states allocate a quota of carbon emissions allowances to 11,000 industrial installations. Companies get most permits free now but many electricity generators will have to pay for all these from 2013.

More than 3,000 airline operators will join the scheme in 2012. Companies can buy a limited number of U.N.-backed carbon emission offsets if that works out cheaper than cutting their own emissions.

3. New Zealand emissions trading scheme:

Launched: July 1, 2010. Mandatory. Covers: Forestry started first. Electricity, industrial process emissions and transport pollution were included from July. Waste to start in 2013. Agriculture to start 2015.
Target: The government has pledged to cut greenhouse gas emissions between 10 and 20 percent by 2020 on 1990 levels.

How it works: Emissions units are allocated based on an average of production across each industry. From July 1, 2010, to Jan. 1, 2013, emitters have the option of paying a fixed price of NZ$25 per tonne of carbon, and will only have to surrender 1 unit for every 2 units of emissions. Such assistance will be gradually phased out.

4. Northeast U.S. states' Regional Greenhouse Gas Initiative (RGGI):

Launched: January 2009 Covers: carbon from power plants in 10 northeast states. New Jersey to withdraw by end of year. Allows offsets from five different types of clean energy projects including capturing methane from landfills and livestock manure, but only if a $7 per ton price trigger is hit.

Target: 10 percent cut below 2009 levels by 2018. 5. Japan: Tokyo metropolitan trading scheme: Launched: April 2010 Covers: Around 1,400 top emitters. Target: Japan aims to cut emissions by 25 percent by 2020 from 1990 levels. Government hopes to pass a climate bill which includes a national trading scheme have faded after the Fukushima nuclear accident took precedence.

How it works: Tokyo city sets emissions limits for large factories and offices to meet by using technology like solar panels and advanced fuel-saving devices.

Japan is also pushing ahead with a bilateral offsets scheme by backing CO2 reduction projects in developing nations.

EMERGING SCHEMES:

1. Australia: Clean Energy Bill

On Nov. 8, parliament adopted what could be the largest emissions trading scheme outside of Europe after more than a decade of trying.
Covers: Australia's carbon pollution apart from exempted agricultural and land sectors, and the combustion of biomass, biofuels and biogas.

Target: National aim to cut greenhouse gases by 5 percent below 2000 levels by 2020.

How it works: 500 companies will pay a A$23 per tonne carbon tax from next July, rising by around 5 percent a year, moving to a market-based trading scheme in 2015. This is subject to a three-year price ceiling of A$20 above international prices for 2015-2016, rising by 5 percent in next two years. There will be a price floor of A$15, rising by 4 percent per year.

2. Californian climate change law “AB 32”:

Launch: Delayed by a year to 2013. Covers: Economy-wide emissions, from power plants, manufacturing and, in 2015, transportation fuels.
Target: Cut the state's emissions to 1990 levels by 2020. How it works: Would give away most of its credits to polluters in the early years of the plan. Allows emitters to use offsets to fulfill up to 8 percent of their compliance obligation.

3. Western Climate Initiative (WCI)

Launch: January 2013. Covers: California, Canada's British Columbia and Quebec. Ontario also expected to join.
Target: Cut emissions 15 pct below 2005 levels by 2020. How it works: Emitters such as power plants would have to buy offsets to cover their emissions. Transport would be included in 2015.

4. South Korea emissions trading scheme:

Launch: Expected to start in 2015. Covers: About 470 companies that emit more than 25,000 tonnes of carbon dioxide annually and are collectively responsible for 60 percent of the country's emissions. All sectors to be covered.

The government wants the bill to be passed before the end of the year and to start the scheme from 2015. It bowed to industry pressure by increasing free carbon permits and softening penalty rules for non-compliance in a bid to get parliamentary approval.

Target: Government has set a 2020 emissions reduction target of 30 percent below forecast “business as usual” levels.

5. Taiwan carbon offset scheme

Launch: Unknown Covers: Nearly 270 companies responsible for more than half of Taiwan's greenhouse gas pollution have agreed to supply emissions data to the government to help it launch a carbon offset scheme.

Target: Taiwan aims to cut CO2 to 2005 levels by 2020. Legislation to limit emissions has struggled to get through parliament since the government introduced a bill in 2008.

6. India: Perform, Achieve and Trade system:

Launch: Trading is set to begin in 2014 after a three-year rollout period.

Covers: A mandatory energy efficiency trading scheme covering eight sectors responsible for 54 percent of India's industrial energy consumption.

Target: India has pledged a 20-25 percent reduction in emissions intensity from 2005 levels by 2020.

How will it work? Annual efficiency targets will be allocated to firms. Tradeable energy-saving permits called Escerts will be issued depending on the amount of energy saved during a target year.

7. China: Pilot carbon trading schemes

in seven provinces and cities – Beijing, Chongqing, Guangdong, Hunan, Shanghai, Shenzhen and Tianjin:

Launch: The pilot schemes can start as early as 2013. They will cover energy production and various energy-intensive industries. Government officials have said 2015 could be the starting date for a national scheme, although a final timetable has not been agreed.

Target: China has pledged to cut the carbon intensity of its economy 40-45 percent below 2005 levels by 2020

Source/Author: The Economic Times