CAP AND TRADE : AN OVERVIEW
Cap and trade is an interesting
concept about controlling emissions in the environment. Emissions could be any
environmental pollutant, however carbon dioxide was able to get more attention,
as being a key in climate change and also being emitted in the environment in largest
amounts. This blog is about a brief introduction to carbon cap and trade and
its impact on the environment.
“Cap” refers to limits on carbon
emissions in the environment from the industries. It is rightly referred as “right to pollute”.
Each year government sets limits to the amount of carbon dioxide emitted in the
environment measured in billion tons of carbon dioxide per year. Credits or
allowances are assigned to the polluting companies as one credit per ton of carbon
dioxide. Other greenhouse gases, such as methane or nitrous oxide, are included
in the cap. Allowances for these gases
are calculated in CO2 equivalents.
For example, methane has 25 times the heat trapping potential of CO2,
so 1/25 of a ton of methane emissions is equivalent to 1 ton of CO2.
This is the “cap” or limit for carbon emission for that company. Each year cap on
carbon gets to successively lower limits.
Here is an interesting word
“trade”. Once credits are allocated to the companies and the caps are set for
carbon dioxide emissions, a company could use up all the credits that are
assigned for carbon pollution, or stay under the cap and sell the unused
credits to other polluters companies that have exceeded their emission credits.
This approach helps as different industries have variable scope in controlling
emissions.
In the past, cap and trade policy
had been implemented for curbing sulfur dioxide, which was pouring out through the
coal fired power plants. Sulfur dioxide has serious health impacts. Under Clean
Air Act 1990, EPA implemented cap and trade and results were encouraging. By
2006, the program had reduced power sector SO2 emissions to 40
percent below 1990 emission levels, at just one-fourth of projected costs. In
2010, the annual health benefits from the program are predicted to total more
than $119 billion, not including the value of reduced acid content in lakes and
streams.
Although implemented successfully
to curtail sulfur dioxide emissions, the US policy-makers seem cautious to
implement similar policies for green-house gas emissions. In Europe however
this policy has been implemented since 2005 under Emission trading Scheme (ETS).
EU ETS achieved the target of reducing carbon emissions in the atmosphere,
however it has always been a wobbly ride. In the time frame of 2005-2009 of EU ETS
carbon emission have reduced by 15% as compared to 9% in US during same time
frame, where the carbon cap is absent. Presently EU ETS is running in its third
phase and the cap has reduced by 21%. However ETS in EU began with some policy
error which need to be corrected recently. ETS allotted too many allowances in
the initial phase, as a result price of carbon collapsed (~€20/ton to ~€5/ton),
as a result ETS has to curb the allowances in the second and third phase. Recently European Commission designed a plan
to take 900 m tons of carbon allowance off the market and reintroduce them
later hoping demand would get better. This plan has been rejected by European
Parliament, nevertheless back-loading as this entire issue is termed as is not
over yet and will be discussed in the future.
In a small time frame Cap and
Trade has become popular worldwide as countries like Australia, South Korea,
and several Chinese provinces are planning to implement it. In the US cap and
trade is implemented regionally by states like California, Connecticut, Delaware, Maine, Maryland,
Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. Except
for California, States mentioned above are part of Regional Green House Gas
Initiative (RGGI) and have noticed a drastic reduction in greenhouse gas
emissions (from 188 million tons of carbon-dioxide
in 2005 to 91 million tons in 2012). Emitting greenhouse gases in the
atmosphere is not a local episode, however it has strong global consequences.
Hence it is important for developing and developed countries all over the world
to come together and participate to create a policy that will benefit not only
the environment but also our coming generations.
2.
http://www.climatepedia.org/Carbon-Markets-Emissions-Trading
5.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/09/cap-and-trade-is-still-alive-in-new-england-is-it-working/
Strategies like cap and trade help control the rate of emissions, yet it seems that even a policy like this needs better regulation. Being able to buy credits once a company runs out is no incentive for a manufacturing business to reduce its rate of pollution. It simply becomes another fixed cost it requires into its expansive budget. I think corporations (and maybe as well as governments) should be held more accountable for the degradation that occurs from their production. What about being held responsible for helping to maintain healthy, diverse forests or funding environmental stewardship to help off set our emissions of GHGs? Great post, very informative and helpful, thank you.
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