The Kyoto Conference on Climate Change in December 1997 proposed the establishment of a legally binding agreement on reductions of greenhouse gas (GHG) emissions by developed countries. The EU has agreed to reduce emissions based on a basket of 6 gases by 8% of 1990 levels by the period 2008 to 2012. The UK’s legally binding target under an EU burden sharing agreement is 12.5% of 1990 levels by 2008-2012. The Protocol resulting from Kyoto identified emissions trading as one of the means by which reductions could be achieved.
What is Emissions Trading?
Emissions trading at a national or international level enables industry to achieve required reductions in carbon emissions in the most economically efficient way. Companies are allocated an emissions target. Those that can reduce emissions at least cost can go further than their target and sell the excess to companies who are finding it more difficult or expensive to reach their target. Conversely, those companies which have found it difficult to reduce emissions can buy the extra allowances they need from those who have gone further than they needed to, effectively paying someone else to do their abatement for them and, over time, establishing a market price for carbon which will help incentivise investment in carbon abatement technology.
The main areas in which ETG has been active are: