The Concept Of Emission Trading Environmental Sciences Essay

Many tradable schemes are in progress to protect the environment or limit the access to natural resources. Emission trading is used in many applications with air pollutants. Since early 1990s emission trading is considered to be a best tool to mitigate the greenhouse gas emissions. Due to the Kyoto Protocol the emission energy has achieved an important role discussed in this protocol. CRC energy efficiency scheme has been launched in UK to bring the several organizations in trading process together. The lesson learned through the experience in last two decades has permitted to analyze the emission trading and depict emission trading as a tool to achieve the set goals most effectively.

Emission trading


Emission trading is a tradable system and is mostly used to deal with the environmental issues since 1970s. Notable issues are the air pollution, water management, fisheries and land management. As the emission trading became the part of the 1997 Kyoto protocol among the countries, it became ultimate aim at instituting emission trading for the greenhouse resources. Various emission trading systems has been developed at different levels. CRC Energy Efficiency scheme is launched to attract the organizations to participate in the trading process.

An emission trading is not a goal by itself, only a tool. Najam et al (2003).

What is the CRC Energy Efficiency Scheme?

It is the first UK’s carbon trading scheme for the organizations having no intentions for the trade emissions in private and public sectors. Aim of this CRC EFS is to improve the energy efficiency and reduce the carbon emission. What are the expected results of the CRC scheme? It is aimed to become more proficient in energy saving schemes. The impact of this scheme will be that different institutions will get benefit from lower energy bills due to thermal insulation, upgraded equipments and other many initiatives.

How does the CRC Energy Efficiency Scheme Operate?

The time period specified for this scheme is seven years and initial period of three year will consists of four key phases. The first phase has been expired and next period is the registration period April- Sept 2010. In the last three phases of scheme the energy efficiency scheme will run concurrently.

What are Risks?

If report data is not correctly submitted then fines are important. To overcome this issue the CRC management will conduct an audit every year. It is important to report the correct data on time and audit is also conducted to validate the correct report. Other risks may be the cash flow and cost factors. Cash flow has impacts for the organizations and can be created by the time lag between the recycling of the revenues and purchase of allowances. When a trading is started then accurate forecasting will mitigate the exposures of high allowances purchase.

Stakeholders have less interest because they think that it will not produce the desired results. The tenant organizations and landlords have also consideration about the energy bills when they are also responsible for the bill paying of their occupiers. If benefits and risks are shared equally by all parties the risk can be minimized.

Idea of Cap and Trade: It is a simple idea and desired amount of pollution is set due to Kyoto Protocol’s targets of reducing the level of the CO2. It is the cap that restricts the pollution to a corresponding amount of certificates. Emitters buy the certificates or get them free of cost. How is the price of the certificates determined? Cost of abatement and market determines the price of certificates.

With regard to individual opportunity costs of emission abatement and market determined certificate prices, emitting facilities adapt their (high) emission-level to their (lower) amount of certificates through the following three trading options: either they reduce their level of pollution, they make even further reductions and sell excessive certificates or they buy certificates in order to have the right to continue original pollution or to pollute more (Kaswan 2008: 5)

Renewable Energy Technology

Renewable Energy Technology (RET) is a very sustainable global energy system. Its widespread use has become the requirement of these days because presently one fourth of the world population has no access to electricity. For the most of the part, these people are living in the developing or non-developed countries. People of these countries have very less chances to education and live in poor conditions due to lack of education. 2.4 billion People live without safe cooking fuels and depend upon the traditional biomass time consuming practice and have adverse impacts on the human health. Solid fuel burning causes the death of 1.5 million people every year and makes the serious health risk in developing countries.

For the economic and human development modern energy service is the prerequisite.

Economic development:

Energy can provide power to machines that gives the access to communication. More jobs are created. Light for education empowers the people to enhance the skills and qualifications. It also provides more facilities to farmers to grow more crops by managing the irrigation system, better preservation of foods and better market transportation facilities.

Poverty Reduction

Modern energy services are provided to poor people to collect the firewood in less time and spend their most time in education and productive activities. Light allow the students of poor countries to study and search the income sources in evenings. It will also reduce the expenditures on the petroleum based fuels or batteries.

Reduction of health risks

Modern energy services provide the ways of better medical facilities as surgery lightening and equipment sterilization. It will also reduce the exposure to indoor air pollutions. More facilities are provided to manufacturers and distributors of medicines to build the advanced system for their products. In this way human death, child mortality and maternal death rate are reduced.

Clean Development Mechanism

The developed countries co-finance the developing countries in many respects. This flexible mechanism was created under the Kyoto protocol and is aimed to reduce the greenhouse emissions in the developing countries. It is the commitment period that ends in 2012 and remains an instrument to mitigate the unwanted activities.

Clean Development Mechanism and Carbon Market

The main role of the CDM is to lower the cost of compliance with emissions reductions commitments which is entered by the developed countries. As defined in the UNFCCC it seeks the increase of the foreign investment and promoting the climate-friendly technologies and ensuring the development in developing countries. Currently carbon trading is handled by the EU’s Emission trading scheme. In Europe power stations and factories emit the CO2 and a cap is set for total amount of the CO2. Cap permits are distributed to all these companies. Companies exchange the permits by buying or selling these permits. These companies also chose to cut their emissions or else to do so. Companies are permitted to buy these permits from the companies working in developing countries through the CDM. The UK government is lobbying for 50% of the EU’s targeted emission reductions by the year 2020. It will be achieved through buying the credits rather cutting the emissions with EU. Carbon trading in EU and UK is currently operating to offset the carbon. By buying the carbon credits it allows the EU and UK to not only cut emissions domestically but also paying for offset in developing countries. It hinders to create a low carbon economy in EU and UK.

UK government has argued that new coal power stations are appropriate to its climate change because electricity sector is in the ETS. New coal power stations will pay for the carbon offsets.

Emission Trading System and Troubles

Highly according with concepts of microeconomic theory, political answers to at present intensely discussed environmental matters have increasingly been seeked in incentive oriented approaches (Drury et al. 1999: 239-242).

As the carbon market is designed with ETS, it has many similarities with financial innovations and huge amount of expenses of financial sector to grow the financial derivative markets. This over increasing the importance of financial markets dominates the productive sector and is called as financialization. After the financial crisis of 2008 it is obvious that it has not made a core progress, creating doubts for us that goal of reducing the greenhouse gases will not make also much progress. Process of the co modification gives birth to serous political, ethical, legal and environmental problems. As we know that immorality of pollution trading lies in the treatment of the public resources and pollution free as a commodity, so people have right to breath in pollution free air; but business process pollutes the environment.

The clean development mechanism CDM and joint implementation JI are the part of the Kyoto protocol flexible mechanisms. These mechanisms provide the European countries help to get the climate reduction targets in a better way. CDM and JI are helpful to countries outside the territories in developing countries.

The systems based on quantity type and other several systems have several disadvantages as compared to price type approach through subsidies, taxes and fees. Carbon market is growing very rapidly and same market banks deal with carbon market. This creates concerns for the speculators as it invites them and is also volatility of the carbon prices. This volatility is inherent in the system due to lack of the elasticity for the supply of permit demands.

The question comes into mind that who benefits from these systems of effective climate policies? Second part of the question is that who does not benefit from these systems? There are many facets of these systems and tell answers about the questions of distributions and equality. World’s incentive environmental program is resolving the environmental justice concerns. Equality between developing and developed countries is also concerning point when CDM is taken into account.

The South Coast Air Basin (SCAB)8, which includes the Los Angeles metropolitan area – the environment to more than 14 million people -, reports the highest air pollution in the United States of America (Drury et al. 1999; 242, De Noon 2005).

Pollution trading and other incentive programs are suspected to make the environmental injustice more severe. The CDM projects do not take care of the local people and land resources of these people are turned into bio-fuel plants.

Concluding Remarks

In this paper we have focused different aspects of the trading emission system. Principles of the Kyoto protocols are given to elaborate the trading emission system. CRC Energy Efficiency Scheme is launched in UK to attract the different companies to share in the trade emission systems. Idea of trade and cap has been also included in this paper. Clean development mechanism is described in perspective of carbon market. Problems of the trade emissions are discussed and their possible solutions are also included in this paper. From this paper we have learned that trade emission systems have benefits for the trading companies and governments involved in the Kyoto protocols.

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