Emissions trading is regarded as being one of the most efficient instruments to reduce environmental pollution on a global scale. What are the opportunities and challenges associated with this market-based approach? The Climate Group interviewed three international experts on the subject.*
 | To read the full interview and other information about emissions trading, please click on the picture to visit The Climate Group. |
What are the advantages of emissions trading as a way to reduce carbon emissions?
Martijn Wilder (MW): Market based mechanisms are a legal compliance tool, designed to achieve an outcome in the most efficient manner. With trading, you must reduce emissions and you must pay the cost to do so.
Peter Vis (PV): The biggest advantage for me is that emissions trading makes reducing emissions cheaper, and by doing so it makes the willingness to act stronger.
Are there any real disadvantages of emissions trading?
MW: There are administrative burdens, but if you keep it simple and manage it properly, these can be minimized. I think the greatest challenge in emissions trading is the politics in designing the scheme, the politics in deciding who is allocated what, etc.
Also, emissions trading cannot easily be applied to all sectors, such as transport. Although air travel is easier because of the large volumes of emissions from each airline, it is much more difficult with individual cars, which are a significant and growing problem.
PV: What we do have to acknowledge is that there is a cost of reducing greenhouse gas emissions in the EU and that there are going to be costs for companies covered by the scheme as a whole. But it is very important to understand that these costs are lower than they would be if we were still trying to achieve the same environmental targets without an instrument like emissions trading.
Chris James (CJ): The issue of currency is certainly a challenge. Whatever kind of program is developed, we would want to make sure that the currency used could be tradable in the open market - so that one ton of carbon in the United States is worth the same as a ton of carbon in Canada, or the EU. This will help promote a better market for trading overall.
What is the status of current emissions trading schemes (EU ETS, RGGI etc.)?
MW: To put it bluntly, the EU scheme is the major game in town. It is really a starting point. There is a long way to go, but it is a very good start. The legislation was agreed to in record time, the scheme was put out, they proceeded with it and it is now having an impact. There are huge amounts of trade going on.
PV: The Norwegians have got a scheme that is in the law, and they are now in discussions with the EU about linking their scheme with EU scheme (Norway is not an EU member state).
We are aware that there is emissions trading developing in Canada, perhaps not before 2008, but under development. New Zealand has a kind of offset project credits, and there has been an interest expressed by the national environment minister to link their scheme with ours.
In the United States there are the north-eastern states and California which are developing their emissions trading schemes at a state level, and similarly all the states of Australia have now committed themselves to develop an emissions trading scheme, notwithstanding the fact the federal government in Australia has not ratified the Kyoto Protocol.
Finally, Japan is a country that one must mention, crucially important in Kyoto - their environment ministry is also following what we are doing in Europe. There is a lot of interest all over the world in the European scheme.
CJ: The US Regional Greenhouse Gas Initiative (RGGI) is still in the development process. But I do not think it is a question of years until RGGI is established, I really think it is a question of months.
How important is the success of the EU scheme?
PV: Crucially import in two respects. The success of the EU emissions trading is important for the EU because it is the first time we have used this instrument and the public and many in government and business want to see that it actually delivers what it is supposed to deliver.
On the international level, what implementing this scheme shows is that the EU is not just talking on climate change, it is actually doing something. If we manage to convince the international community that acting in this way makes good economic and environmental sense then we are showing what can be done on a wider scale and in the longer term.
Is trading within Kyoto enough to realise the kind of emission reductions which are necessary long-term?
MW: Absolutely not. We need major technological breakthroughs and almost a new economic revolution if we are going to reach targets like a 60 percent reduction in CO2 emissions by 2050. Kyoto is a very important first step, and trading will deliver reductions, but a range of solutions to reduce global emissions is required.
* The interview has been condensed and abridged. To read the full-length version, please visit www.theclimategroup.org
Martijn Wilder (MW), Partner, Baker & McKenzie Wilder heads Baker & McKenzie's Global Climate Change Group. He advises governments, multi-lateral organisations such as the World Bank, and corporations on all aspects of climate change law and policy, emissions trading, and the development of climate business strategy.
Peter Vis (PV), Acting Head of ‘Industrial Emissions’ Unit, Directorate-General for Environment, European Commission Vis has been working on environmental economic instruments since 1997, and has concentrated on taxes and greenhouse gas emissions trading. In 2000, he was the main author of the Commission's Green Paper on the subject. In the autumn of 2001, the Commission made a proposal for a greenhouse gas emissions trading scheme within the EU, which Peter Vis was responsible on a day-to-day basis. The Council and the European Parliament adopted this proposal in July 2003.
Chris James (CJ), Director, Connecticut Department of Environmental Protection (DEP) James co-led development of Connecticut’s Climate Change Action Plan, a stakeholder process with the collaboration of the governor’s office and six cabinet agencies. He has also worked with the Connecticut legislature to develop bills to enact climate change statutes, including mandatory reporting and registry. He is Connecticut’s environmental representative to Regional Greenhouse Gas Initiative (RGGI), a nine-state effort to develop a framework for carbon limits and a trade system for the utility sector.
publishing date: May 2, 2006
