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An emissions trading scheme allows for flexibility and accountability in managing emissions by issuing credits for pollutants that can be exchanged between those who produce the least pollution and those who produce the most. The Kyoto Protocol established this concept and allows for the trading of various types of units, including carbon dioxide credits and Certified Emissions Reduction Program credits. The European Union also developed its own emissions trading scheme, and nations can develop their own national schemes.
Emissions refer to the pollution that is released into the air. An emissions trading scheme refers to a program that offers flexibility and accountability where emission limits have been set. This is done by issuing credits for pollutants which can be exchanged between those who produce the least pollution and those who produce the most.
The Kyoto Protocol is an international agreement that many countries have signed as part of an agreement to reduce their greenhouse gas emissions. Those who have signed this agreement are usually referred to as signatories. With the birth of this agreement came the birth of a concept known as an Emissions Trading Scheme. The deal was designed to manage emission levels by issuing Assigned Amount Units (AAUs) to signatories.
The AAU determined how much pollution each signatory could emit. The Emissions Trading Scheme was designed to allow countries to profit from using fewer AAUs than intended. They could profit by selling their excess AAUs to those countries that needed more than they were allocated.
The Emissions Trading Scheme was also designed to serve as a sanctions system. If a country’s emissions exceeded the AAU, they would need to buy credits. This could then be seen as a supplement for exceeding the given limit.
In many cases, the emissions trading scheme is referred to as a carbon market. This is because carbon dioxide is one of the most emitted gases and can be the hardest to reduce. Thus, the trading of carbon dioxide credits has been prevalent.
Under the Kyoto Protocol, there are other types of units that are issued and can be traded. For example, there is the Certified Emissions Reduction Program (CER). Credits can be earned through this program when a signatory develops an emissions reduction project in a developing country. Earned credits can be sold or can be used to increase the holder’s emission limits.
An emissions trading scheme is not always international. The European Union (EU) developed the European Union Greenhouse Gas Emissions Trading Scheme (EU ETS). This system was developed to allow for exchange between various sectors of the various EU Member States.
The Kyoto Protocol also allows for the development of a national emissions trading system. This can be achieved if a nation’s AAU is divided among the nation’s top polluters. This will provide these parties with individual emission limits. In case an entity has excess AAUs, they can be sold to those domestic entities that have exceeded their limits or they can be resold to domestic authorities.
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