All through the whole world, there has been a growing consensus towards a universal strategy for climate change and global warming. In the U.S., vested parties, for example, the Ecological Protection Fund and Friends of the Universe had backed administrative action. In response, the United Nations through the UN Framework Convention on Climate Change sanctioned the Kyoto Protocol in the early 90s (UNFCCC, 2009, p. 4).
Regardless of ratification by each country, except for the United States, the Protocol has been viewed with a lot of incredulity. It has been regarded as imperfect and insufficient by critiques, hence the need for amendments or substitution. As a result, local and regional alternative measures have been looked for and actualized by the past and current governments with a specific end goal to draw in this situation (OECD, 2003, p. 17).
Under the UNFCCC, member countries were required to stabilize their greenhouse gas (GHG) discharge at 1990 levels before the new millennium (UNFCCC, 2009, p. 6). The Kyoto Protocol took the matters further by calling for all the developed economies (except New Zealand, Russia, and Ukraine) to cut down their greenhouse gas discharge by 5 percent from 1990 levels. Iceland, Norway, and Australia were allowed to increase their emission due to their low discharge. Al in all, a few nations have effectively consented to reduce GHG discharges through Kyoto Protocol and many more nations are occupied with the worldwide examinations tending to GHG emanations for a post-Kyoto period through the United Nations Convention on Climate Change (UNFCCC). In any case, the realization of Kyoto targets has not been easy.
Regardless of the possibility that the objectives are met, noteworthy changes in fiscal operations and industrial framework will be necessary to adapt to further reduction of greenhouse gas discharges in the long haul (UNFCCC, 2009, p. 8; IEA, 2011, p. 369). This paper will explore various measures Annex 1 countries would need to adopt so as to minimize their greenhouse gas emissions to under-1990 levels. In addition, the paper will critically analyze the effectiveness of emission trading scheme in mitigating greenhouse gas emissions, as well as the challenges or issues that would arise from setting up a GHG emissions trading scheme platform.
Efficient GHG emissions mitigation strategies
Given the flaws in the Kyoto Protocol, a number of countries have been striving to come up with efficient measures for curbing greenhouse gas emissions. This raises the subject of what defines “efficiency”? According to the Kirchgässner and Schneider (2003), the efficiency of the mitigating measures is based on the following: first, the measures are considered efficient when they reduce real emissions instead of transferring emissions; second, the measures must be cost effective and; lastly, they should have little effect on competitiveness (25)..
Some of the proposed measures for Annex 1 countries to effectively reduce greenhouse gas emissions include carbon/energy taxes, voluntary approaches, GHG emissions trading (also known as ‘the carbon market’ or ‘cap and trade’), and investment in renewable energy sources (OECD, 2003, p. 17).
Carbon/energy taxes were initially presented in the 1990s by a number of Western European nations. Carbon/energy taxes are increasingly being embraced by many countries all over the world to mitigate GHG emissions, especially in the industrial sector, for instance, United Kingdom introduced “climate change levy, whereas Estonia and Poland are charging CO2 tax (OECD, 2003, p. 17; Maxwell, 2011, p. 66). It is usually considered as part of green tax reform. Carbon/energy taxes have not only helped in raising government revenue, but also in enhancing energy efficiency.
The voluntary approaches that should be used by Annex 1 countries include individual commitments by industries, private treaties between companies and stakeholders, environmental treaties signed between governments and industries, and deliberate projects created by the government that individual firms can join (OECD, 2003, p. 18). Voluntary agreements should be introduced because of the growing concern that carbon taxes are adversely affecting the competitive advantage of local industries. For this reason, governments should involve business sectors in drafting or amending GHG emission reduction policies, for instance, the Swiss government recently came up with an emission mitigation policy in close consultation with industry stakeholders (Krarup & Ramesohl, 2002, p. 5).
Krarup and Ramesohl (2002, p. 5) explain that energy-related voluntary agreements in a number of Annex 1 countries have been in place for sometimes, and there are far-reaching experience and studies on the efficiency of such agreements. They add that different forms of agreements have been used to mitigate greenhouse gas emission and they vary in terms of design. Whether they are legally binding or not, companies that do not comply can be sanctioned or permitted to use offsets like GHG emission trading or development of clean energy.
GHG emission trading, on the other hand, is a method of regulating greenhouse gas emission by providing economic incentives for emitting the least amount of pollutants. Through cap and exchange, governments or global bodies can set the maximum volume of pollutant discharge. Organizations/countries are apportioned discharge grants permitting them to emit a given amount of greenhouse gas into the air.
However, companies/ countries that want to increase their emission can buy ‘credits” from least emitters (IEA, 2008, p. 86). Countries are normally assigned an amount of unit emissions with the aim of minimizing the amount of greenhouse gas discharge. In other words, countries that have exhausted their assigned amount of unit emission are allowed to purchase additional units from countries that have not exhausted theirs. In this case, GHG emissions are like any other commodity in the market (OECD, 2003, p. 23). As much as GHG emission trading has helped to reduce greenhouse gas emissions, it has received numerous criticisms from different quotas. This will be discussed later on in the paper.
Last but not least, Annex 1 countries should invest more resources in renewable/green energy in their attempt to reduce greenhouse gas emission. These energy sources have a very minimal environmental impact. Green energy includes solar, wind, geothermal power, hydroelectric power, and nuclear energy (UNFCCC, 2009, p. 10). Nowadays, the term green energy has gained multifaceted definition.
Green energy source not only include clean sources of power, but also the efforts that are geared towards energy conservation. For instance, buildings that are designed in a way that they regulate their own temperature instead of using air conditioning or heating system are also viewed as a green energy source in the contemporary setting. Therefore, the conservation of energy is itself viewed as a green energy source (Karekezi 2003).
Emission Trading Scheme/ Carbon Trading
As already been mentioned, emission trading scheme is a method of regulating greenhouse gas emission by providing economic incentives for emitting the least amount of pollutants. Article 17 of the Kyoto Protocol expresses that, “Nations that have AAUs (Assigned Amount of Unit Emissions) designated to them which are not utilized, are allowed to offer their AAUs to nations that have exceeded their limits” (IEA, 2011, p. 33).
The main objectives of the scheme are to minimize GHG emissions and to encourage investments in low-carbon technologies. As much as carbon trading scheme has helped to minimize GHG emissions in the local and global front, critics argue that it has done so little in solving general pollution problem (Watanabe, 2011, p. 77). The least developing economies that preserve their assigned amount of unit emissions in the long run sell to the highest bidding Annex 1 countries. As a result, developed economies, instead of taking genuine steps towards minimizing the volume of GHG emissions, are basically buying AAUs from least developed economies since they have the money. Besides, the market is unregulated (Morotomi, 2012, p. 71).
Gunasekera and Cornwell (1998) argue that emission trading schemes have significant economic impact, especially in developing economies. The industrialized economies are able to develop at a faster rate by purchasing carbon permits, whereas the developing economies are left to wallow in poverty by trading their allocated units. The methods of measuring GHG emissions, permit allocation, permit expiry period and schedule of emission reductions are also not reliable. It is also absolutely hard to monitor carbon trading scheme. In addition, the transactional cost of a trading scheme that involves greenhouse gasses other than carbon dioxide is considerably high.
Nevertheless, emission trading scheme as an approach has been considerably effective in some countries. While the economic models have been stressing on their economic inefficiencies, emission trading systems used in Japan, for instance, Tokyo Metropolitan Government ETS have demonstrated their benefits. Likewise, it has been demonstrated that on a fundamental level emission trading systems used in Japan are outlined in a manner that they satisfy sustainability criteria. The table below shows the design of the sustainable emission trading schemes versus Tokyo Metropolitan Government ETS (Rudolph & Kawakatsu, 2012, p. 4). Figure 1, on the other hand, shows the greenhouse gas discharge by gas and origin, as well as share.
Tokyo Metropolitan Government (TMG) ETS was introduced in 2008 and started operating in 2010. Tokyo City was transformed into a low carbon city to make it contend globally with other big cities. Another reason for this transformation was to demonstrate the path to the national government. Because of the huge share and the expanding pattern of CO2 emanations from the business area, the Tokyo Metropolitan Government ETS focused on CO2 discharges from the end utilization of energy in huge structures and processing plants (Rudolph & Kawakatsu, 2012, p. 7).
Altogether, the Tokyo Metropolitan Government ETS covers approximately1300 commercial buildings and manufacturing plants. These facilities spend more than 1,500 kiloliter of raw petroleum, which is identical every year. While separated emanations figures apply to energy consumed as a part of industrial facilities, power use is dealt with by one discharge variable credited to specific electricity supplier (Tokyo Electric Power Company) (Rudolph & Kawakatsu, 2012, p. 8).
TMG ETS is based on the following formula
Carbon dioxide discharge (t of CO2) = power utilization (kWh) x emission factor (t of CO2/kWh). Therefore, the project covers approximately 13 Mio. t. of energy-linked carbon dioxide representing 40 percent share of all CO2 discharges from the business and manufacturing division in Tokyo and 20 percent share of Tokyo’s aggregate CO2 discharges. The system is obligatory for all the targeted businesses and factories without any possibility of opting in or out.
Exchanging of credits is permitted among participants and some other lawful element. However, trading of credits is restricted by annual reduction obligations. For this reason, excess credits are only granted, based on the following formula: surplus credit = Actual Yearly Reduction–Annual Cap. These credits are only provided on application by targeted premises. Non-compliance attracts a fine of up to a half a million yen (Rudolph & Kawakatsu, 2012, p. 8).
Table 2 shows TMG greenhouse gas discharge reduction targets for 2020 by sector.
TMG ETS has managed to reduce greenhouse gas emission in Tokyo by over 8 percent. However, it still falls short in terms of the requirements for sustainable carbon markets. This is due to the fact that it pays more attention to CO2 emissions and less attention on other greenhouse gas. Therefore, it is yet to fully meet the sustainability criteria. Some critics also argue that TMG ETS does not treat all the emitters in the same way. All in all, it has TMG ETS has made tremendous steps towards GHG emission reduction (Rudolph & Kawakatsu, 2012, p. 18).
Numerous attempts have been made towards the reduction of GHG emissions, both locally and internationally. However, experts argue that little has been done to tackle real pollution challenges. Some of the measures that should be used by industrialized nations to reduce greenhouse gas emissions include carbon/energy taxes, voluntary approaches, GHG emissions trading, and investment on renewable energy sources. These measures have proven to be effective, except emission trading schemes that are riddled with controversies. However, emission trading scheme as an approach has been considerably effective in some jurisdictions, for example, Tokyo, Japan.
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