In 1993, the first emissions trading program, Los Angeles' Regional Clean Air Incentives Market (RECLAIM), began to reduce sulfur dioxide and nitrogen oxide emissions in the worst air basin in the U.S. Designed by California's South Coast Air Quality Management District (SCAQMD), RECLAIM, according to the Environmental Protection Agency (EPA), allows "a facility with an air emissions permit...to use the most cost effective strategy to meet its emission reduction obligations."
The Dag Hammarskjöld Centre released a report (pdf) in 2006 titled "Carbon Trading: a critical conversation on climate change, privatisation and power." The report mentions that the Los Angeles "industry successfully lobbied local government to replace existing and proposed air quality regulations with a trading program." The SCAQMD allocated pollution allowances to the 370 worst polluters, "including oil refineries, power plants, aerospace companies, asphalt batch plants, chemical plants and cement plants." Los Angeles still has the worst air basin in the country.
Two years later, the U.S. government implemented an emissions trading program in order to reduce sulphur dioxide by 10 million tons below the 1980 levels as part of the 1990 Clean Air Act's Title IV. The program was dubbed the Acid Rain Program because sulphur dioxide causes acid rain.
According to the EPA, the Acid Rain Program introduced "an allowance trading system that harnesses the incentives of the free market to reduce pollution."
Under the Acid Rain Program emissions allowances are issued to "affected utility units...based on their historic fuel consumption and a specific emissions rate." Each allowance permits "a unit to one ton of sulphur dioxide during or after a specified year." One allowance is retired for every ton of sulphur emitted a year.
During Phase II of the Acid Rain Program, a permanent cap of 8.95 million allowances was set for "total annual allowance allocations to utilities."
The Dag Hammarskjöld Centre's report criticized the Acid Rain Program, pointing out that the U.S. Congress specified that an emissions allowance "does not constitute a property right' and can be ‘terminated' or ‘limited' by the government without compensation being due." However, the Congress "went out of their way to reassure polluters and utility investors that they ‘should expect that allowances will partake of durable economic value and that commercial and other relevant law will apply to allowances and function to protect their value.'"
The report also pointed out that the EPA "expressed its ‘intention to treat emissions allowances as if they were absolute property rights, except in exigent circumstances.'" According to the report sulphur levels in the U.S. increased by four percent in 2003 "as a result of the program's banking mechanisms."
A recent article published on Alternet.org noted that despite the fact that sulfur dioxide emissions went down under the Acid Rain Program, "no one claims the trading program reduced emissions more or even more rapidly than would have occurred without trading.
The argument is that it achieved a given level of emissions cheaper." The article questions "just how much the costs were reduced." The article also cited estimates by the Hammarskjold Foundation that 20 percent of the reductions occurred prior to the Acid Rain Program.
Kyoto Protocol
Four years after the implementation of the Acid Rain Program, the Kyoto Protocol was adopted. The Protocol is an international agreement to reduce greenhouse gas emissions. According to the United Nations Framework Convention on Climate Change (UNFCCC), "The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions .These amount to an average of five per cent against 1990 levels over the five-year period 2008-2012."
The Protocol has three "market-based mechanisms" for countries to reduce GHG emissions:
- Emissions trading: Countries with excess emissions units can sell them to other countries that have used up their units.
- Clean development mechanism (CDM): Developed countries with a commitment to either emission-reduction or emission limitation can implement an emission reduction project in a developing country, and earn certified emission reduction credits (CER) which can then be sold. Each CER is equivalent to one ton of carbon dioxide.
- Joint Implementation: Countries with an emission reduction/limitation commitment can earn emission reduction units (ERUs) through an emission reduction or removal project in another country. ERUs are also equivalent to one ton of carbon dioxide.
The Dag Hammarskjold Centre report is equally critical of the Kyoto Protocol, and points out that "there are loopholes" in the Protocol. "Countries unable or unwilling to achieve these modest targets are allowed to ‘compensate' for their failure through three trading mechanisms, or markets."
The Tyndall Centre for Climate Change Research released a report (pdf) in 2007 about CDM. The key findings in the report showed:
- The CDM has shown to be effective as a new market mechanism in its aim to achieve cost effective emissions reductions in developing countries.
- The CDM has fallen short of contributing to sustainable development contributing to an uneven geographical distribution of projects and dominance in certain sectors.
- For example China is capturing the majority of projects, while Africa has gained little from technology transfer to kick start development activities, gaining only four percent of projects to date.
- The CDM dividends have been largely climate or employment related. The difficulty of defining sustainable development and the issue of sovereignty allocated to host governments with respect to the responsibility for setting sustainable development criteria, which has meant in some countries sustainable development has been overlooked.
- Perspectives on the CDM are diverse, some more positive, yet all highlight the potential risk factors associated with the CDM. One of the key challenges for the future of the CDM is how to illustrate to civil society that participation of local stakeholders in the CDM is possible and that sustainable development criteria at the government level will lead to social development benefits that will outweigh social costs.
- In discussing the future of the CDM, policy makers will have to consider the wider contributions of the CDM to development, and ways to offer additional incentives to develop a minimum percentage of CDM projects in Africa. In this way civil society, donor and business interests may all be addressed.
- Possible CDM futures are presented focusing on summaries of the main post 2012 proposals. Five alternative options for systematically addressing sustainable development benefits in the CDM are presented. The most likely scenario is one that falls in between "not doing anything" to "politically favoring" CERs which ensure highly sustainable development projects.
In July 2006, the New Internationalist stated that only two percent of CDM credits go toward renewable energy. "The vast majority of credits generated are the result of a few industrial gas capture projects at major chemical and manufacturing plants that capture hydrofloracarbons-a powerful greenhouse gas. Of the 176 registered offset projects with the UN's climate office, 99 are biomass projects, initiated by industries such as sugar refineries that have huge environmental impacts in other areas."
EU's GHG Emission Trading Scheme
The European Union's (EU) GHG Emission Trading Scheme began to operate in January 2005. It is the largest "multi-country, multi-sector Greenhouse Gas emission trading scheme world-wide," according to the EU's website. The scheme "gives energy-intensive industries an allocation for emissions," according to SmartPlanet.com. "Efficient companies can trade their excess emissions to companies that emit more than their fair share."
Two years after the EU's trading scheme began, the International Carbon Action Partnership (ICAP) was launched. The ICAP consists of countries and regions that are pursuing the implementation of emissions trading markets through "mandatory cap and trade systems." ICAP was established to "contribute to the establishment of a well-functioning global cap and trade carbon market."
"Just over a month ago, Europe was united in pushing other developed countries to commit to reductions of 25-40 per cent in emissions by 2020. Yet today it has only committed to a 20 per cent reduction," said Steven Hale, director of Green Alliance in Britain.
British environmentalist and author George Monbiot is also critical of the EU's trading scheme. "This system, which has been running since the beginning of 2005, began by handing out carbon dioxide emissions permits, free of charge to big European companies. By and large, those who produced the most carbon emissions were given the most permits: the polluter was paid," he wrote in his book Heat: How to Stop the Planet from Burning[i]. He further pointed out in Heat that the scheme "seized something which should belong to all of us-the right, within the system, to produce a certain amount of carbon dioxide-and given it to the corporation."
[i] Monbiot, George. Heat: How to Stop the Planet from Burning. Cambridge, MA: South End Press, 2007, p.46.
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