In a combined world effort to combat the threat of climate change, the United Nations passed the Kyoto Protocol in 1997. Originally ratified by some 156 countries and later rejected by both the US and Australia – both major polluters , the protocol set out to reduce carbon emissions worldwide by 2012. Subsequent agreements have been laid out to continue the work and further countries around the world have signed on and pledged their support.
Creation & Further Changes
The Conference of Parties (COP) originally drafted the treaty through the United Nations Framework Convention on Climate Change. In 2010, the Cancun agreements furthered the agreement to take into account a specific limit to temperature rise – 2.0 °C (3.6 °F) before industrial climate levels. 2015 ushered in the Paris agreement that put forth further limitations to fossil fuel consumption and a timeline to end certain energy practices.
Under the Kyoto Protocol, countries agreed to target their pollution levels and reduce their emissions from greenhouse gases under a specific level that was dependent on unique predetermined reduction targets set under a certain timeframe. The largest polluter countries are given a set number of emission permits – or carbon credits. These permits are measured in carbon dioxide units – a main culprit and major greenhouse gas. One credit is worth up to one ton of carbon dioxide produced. These credits allow for pollution to occur up to a set limit. A reduction of 5.2 percent was originally agreed upon in Kyoto.
Mechanics of Credits
There a few different ways that industries can use these carbon credits. If a polluter does not use their entire round of carbon credits, they can save the remaining number until the next period occurs or sell them to other polluters on the market. Conversely, if a polluter overuses their credit allowance in an allotted time period, and then pollutes more they must buy more permits from another polluter that hasn’t used up their allowance.
Finally, polluters are able to invest in pollution reduction plans within other countries and regions. The main idea behind this is a way to compile extra credits that can be sold to other polluters, used for their own business or stored for the future. These credit earning projects take place in developing countries under the Clean Development Mechanism (CDM) and the Joint Implementation (JI) when fostered in countries that have reduction targets.
Carbon Emissions – Pollution Reduction Aims
One of the main pollution reducing mechanisms behind this accord was the carbon trade. The intended goal behind this kind of market is to make sure that companies within specified countries do not pollute over a baseline level, thus ensuring the emission reduction is met and providing financial incentives for companies to pollute less in the meantime.
There are a few different versions of emission trading initiatives throughout the world that align with the Kyoto Protocol. It’s commonly referred to as cap and trade. These are government regulatory programs that set out to limit the amount of specific chemical outpourings that produce carbon dioxide and other greenhouse gases from private business activities. The purpose is to create a market dynamic for pollutants. Cap and trade is often seen as the better alternative than a strict carbon tax. The goal is to offset the damage done to the environment through a gamified financial market system.
Individual UN Draftee Programs
Countries under the jurisdiction of the Kyoto Protocol have come up with a number of ways to trade emissions and meet the ongoing goals of the United Nations Framework Convention on Climate Change. A trading initiative in the European Union called the European Union Emission Trading Scheme (EU ETS), is one of the largest. The United States entered into the fold in 2009 with their own carbon cap and trading program.
One of the primary foundations of the carbon trading market is that the cap imposed on greenhouse emissions is set by the local jurisdiction regulating the levels. For example, as the cap continually grows lower, more entities will be producing more than their share of carbon emissions. This drives an incentive to figure out ways to beat the cap and then utilize those extra unneeded credits and sell them in the market place. Basic supply and demand in theory would point towards the following scenario: as more companies need offset carbon credits, the carbon credit price will rise and response should be new environmentally friendly solutions being put forth.