Impacts of carbon reduction schemes

Impacts of carbon reduction schemes

Could carbon trading help fund my project?

Emissions allowances - history


The Kyoto Protocol, 1997 placed caps on emissions for Annex I nations; final trading period ends 2012. Copenhagen, 2009 set out to limit global temperature increase to 2ºC. It failed to establish a binding agreement for the period following Kyoto. Developed nations are to identify emissions reductions targets and assist with funding for developing nations. Developing nations are to identify “nationally appropriate mitigation strategies”
Cancun Mexico, 2012is the next meeting to establish new agreement post-Kyoto.


Market mechanisms for emissions reductions
Clean Development Mechanisms (CDM)

Annex I (developed) nation implements a project in developing nation which will result in a net reduction in carbon emissions over and above that which would have occurred if the project did not take place. The developed country gains CER (Certified Emission Reduction) credits and is able to offset these against total emissions

Joint Implementation (JT)

Annex I country implements an emissions reduction project in another Annex I country where emissions reduction measures are cheaper to implement, off setting against total emissions


Emissions Trading

Trading of carbon credits in carbon markets

Reducing carbon emissions: - carbon taxing vs. carbon trading

Emissions reduction mechanisms are designed to provide economic incentives to reduce carbon emissions:
  • Emissions taxing is considered to be a "price" mechanism, which sets the cost of emitting, but does not necessarily cap overall emissions
  • "Quantity" trading mechanisms include current and proposed carbon markets, such as current "cap and trade" type schemes e.g. the European Union (EU) Emissions Trading System (ETS), which sets an overall limit on emissions, and allows for carbon credits to be traded as a commodity. It is these trading mechanisms for which Kyoto makes provision. Nations are also free to trade in Carbon outside Kyoto under voluntary systems

References/further information

IETA and PricewaterhouseCoopers (2010) Fifth Annual IETA Market Sentiment Survey

HM Treasury and the Cabinet Office (2006) Stern Review on the Economics of Climate Change, Part IV

“The key challenge for climate-change policy is how the developing world can raise its standards of living towards those of the developed countries and at the same time global carbon emissions and other environmental damage can be reduced” (PWC, 2010)

Select and implement an appropriate carbon trading scheme

How could carbon trading help your project

Using Clean Development Mechanism (CDM):

Annex I nation wishes to implement a project with emissions reduction benefits in a developing nation.

Notes: In order to be accepted as a CDM project, both the developing and Annex I host nation need to authorise it through Designated National Authorities (DNA). The project then goes through a rigorous system of registration overseen by the CDM executive board.

Using Joint Implementation (JI): If an Annex I country is better able to implement emissions reduction in another Annex I country and this is likely to be cheaper than emissions reduction in the first country

Notes: JI projects are also subject to careful controls and authorisation.

Using emissions trading: Where a company or entity has reduced emissions or not reached its emissions limits, carbon credits can be traded for financial gain.

Notes: Criticisms of carbon markets include volatility in the markets due to uncertainty in regulatory commitments and futures. There is also criticism that they will fail to meet the required 2ºC cap on temperature rise. However, with carbon markets the price of carbon is real and set by the market and does work with an overall cap which, in theory, can be used to meet overall requirements under successor to Copenhagen.

Possible concerns in carbon trading schemes, for developing nations (Richman, 2003)
  • Imposition of unsuitable developed country structures on developing countries
  • Potential lack of negotiation skills, resources or bargaining positions in some developing countries
  • Potential for exploitation: what happens if developed nations implement cheapest and “easy win” emissions reductions in developing countries under, e.g. CDM, and developing nations later are bound to emissions reductions targets. But, the schemes may also stimulate developing world, economic growth and infrastructure development, as well as introduce emissions reductions additional to those that would otherwise have been achieved

References/Further Information

International Law and Politics Vol 36:133 (2003)
Emissions Trading and the Development Critique: Exposing the Threat to Developing Countries, Emily Richman.
CDM Home on the UNFCC website
JI Home on the UNFCC website
Capacity Development for CDM website