Incentive Based Mechanisms for Reducing Greenhouse Gas Emissions
Emissions Trading
Allows carbon credit trade between developed countries to meet their Kyoto Obligations. Typically, this involves the trading of carbon credits across international boundaries.
Case: European Economic Community (made up of European nations — all signatories to Kyoto).
To provide incentives to reduce greenhouse gas emissions to meet their Kyoto-mandated reduction targets, the European Economic Community (EEC) developed a “cap-and-trade” system that caps the overall amount of carbon emissions produced by large stationary emiiters of GHGs in the EEC (power plants and factories) and then these emitting companies within the EEC to buy and sell carbon credits among each other to achieve overall GHG emission reductions. Watch the video below, then answer the questions.
A certificate of either: a reduction in greenhouse gas emissions; or an increase in carbon storage (e.g. net forestation). Typically, 1 credit = 1 ton of CO2 equivalent. Credits derived from joint implementation, CDM, and REDD+ projects can be purchased and used by private firms (and their governments) to address their GHG emission reduction obligations.
The EEU carbon trading system is modeled after a successful US program (EPA) to reduce the release of SO2 by utilities. As described in lecture earlier, here is how this "cap and trade" system works:
