Kiera Jefferson
Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing emissions. It is also known as cap and trade or emissions trading schemes (ETS). The concept puts a price on pollution, creating an economic incentive to reduce it. In an emissions trading scheme, a central authority or government body allocates or sells a limited number of permits that allow a discharge of a specific quantity of a specific pollutant over a set time period. Polluters are required to hold permits in amounts equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell them. Emissions trading programs have been used to reduce carbon dioxide, sulfur dioxide, nitrogen oxide, and other greenhouse gas emissions.
| Characteristics | Values |
|---|---|
| Approach | Market-oriented |
| Goal | Minimise the cost of meeting a set emissions target |
| Pollutants | Carbon dioxide, sulfur dioxide, nitrogen oxide, mercury, greenhouse gases, volatile organic compounds, ground-level ozone precursor pollutants |
| Types of programs | Cap and trade, baseline-and-credit, pollution tax, project-based (credit or offset) |
| Key components | Limit (or cap) on pollution, tradable allowances |
| Allowances | Authorisation to emit a specific quantity of a pollutant |
| Compliance | Participants must hold permits equal to their emissions; companies must surrender allowances to match their verified emissions |
| Incentives | Bonus allowances, tax deductions |
| Flexibility | Ability to trade, sell or purchase allowances; ability to bank allowances for later use |
| Effect | Reduced emissions, improved human health and environmental benefits |
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What You'll Learn
Carbon emissions trading
Emissions trading is a market-oriented approach to controlling pollution by providing economic incentives for reducing emissions. One prominent example of this is carbon emissions trading, which targets carbon dioxide (CO2) and other greenhouse gases (GHGs). Carbon emissions trading is also known as a carbon market, cap and trade, or an emissions trading scheme (ETS).
The concept of carbon emissions trading is based on the successful cap and trade regulations that reduced sulfur pollution in the 1990s. The idea of applying a cap-and-trade solution to carbon emissions originated with the Kyoto Protocol, a United Nations treaty to mitigate climate change. The goal of carbon emissions trading is to limit climate change by creating a market with limited allowances for emissions. This approach incentivizes nations and companies to cut back on carbon emissions so they have leftover permits to sell. It also reduces the competitiveness of fossil fuels, which are the main driver of climate change.
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Sulfur dioxide trading
Emissions trading, also known as cap and trade, is a market-oriented approach to controlling pollution. It provides economic incentives for reducing the emissions of pollutants. In an emissions trading scheme, a central authority or government body allocates or sells a limited number of permits that allow a discharge of a specific quantity of a specific pollutant over a set time period.
The success of the Acid Rain Program has been debated. While it has been hailed as successful by the EPA, industry, economists, and certain environmental groups, some skeptical environmentalists argue that the reduction in emissions occurred due to broad trends unrelated to the program. Additionally, researchers have found higher levels of particulate air pollution and associated premature mortality under the program compared to a hypothetical no-trade scenario.
The market price of sulfur dioxide allowances has fluctuated over time. In 2005, the price of an SO2 allowance rose above $1,600 per ton, making it more cost-effective to install scrubbers and reduce air pollution than to purchase allowances. Subsequently, the market price of SO2 allowances decreased significantly, with trades occurring at around $88 per ton in August 2009.
The overall goal of emissions trading in the context of sulfur dioxide is to minimize the cost of meeting set emissions targets. This is achieved by providing flexibility for emissions sources to select a compliance approach and trade allowances by selling or purchasing them on the market.
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Nitrogen oxide trading
Nitrogen oxide (NOx) emissions have been a key focus of environmental studies, particularly in the context of international trade. NOx emissions have been shown to have detrimental effects on the environment, and the transfer of embodied NOx between major economies has become a significant concern. This is evident in the bilateral trade between China and the European Union, where the spatial distribution of global NOx emissions is significantly altered due to the importation of products.
Emissions trading, also known as cap and trade (CAT) or emissions trading scheme (ETS), is a market-based approach to controlling NOx emissions. It provides economic incentives for reducing pollutant emissions. In an emissions trading scheme, a central authority or government body sets a limit on overall emissions and defines permits or allowances that authorize the emission of a specific quantity of NOx over a set time period. Polluters are required to hold permits equivalent to their emissions, and those seeking to increase emissions must purchase additional permits from willing sellers.
The flexibility of emissions trading allows organizations and markets to decide how best to meet policy targets. For example, emissions sources can choose to install emission reduction control technologies, upgrade existing controls, or improve plant efficiency to reduce NOx emissions. By trading allowances, participants can select a compliance approach that suits their needs while still working towards the overall emissions reduction goal.
Emissions trading programs have proven successful in reducing NOx emissions. For instance, the US EPA's Acid Rain Program, established under the 1990 Clean Air Act Amendments, has effectively decreased air pollution and its associated human health and environmental impacts. Over time, these programs have evolved to address various air pollutants and continue to play a crucial role in mitigating climate change.
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Mercury credits
Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). In an emissions trading scheme, a central authority or governmental body allocates or sells a limited number (a "cap") of permits that allow the discharge of a specific quantity of a specific pollutant over a set time period. Polluters are required to hold permits in amounts equal to their emissions.
One prominent example of emissions trading is carbon emission trading for CO2 and other greenhouse gases, which is a tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.
Emissions trading programs provide flexibility for emissions sources to select a compliance approach. The ability to trade allowances by selling or purchasing them from the market provides an incentive to reduce emissions below the cap so that they can sell or bank surplus allowances. In a baseline and credit program, polluters can create permits, called credits or offsets, by reducing their emissions below a baseline level, which is often the historical emissions level from a designated past year.
In the context of mercury emissions, mercury credits refer to the permits or allowances allocated or sold by a central authority or governmental body that authorize the discharge of a specific quantity of mercury into the environment over a specific period. These credits are typically allocated or sold to industries or facilities that are known to emit mercury, such as coal-fired power plants, industrial boilers, cement production facilities, or waste incineration plants.
The number of mercury credits allocated or sold is typically based on a cap or limit set by the regulating authority to reduce overall mercury emissions. Facilities that are able to reduce their mercury emissions below their allocated credits can sell or trade their surplus credits to other facilities that may need additional credits to comply with the regulatory requirements. This creates a market for mercury credits, where the price of each credit is determined by the demand and supply in the market.
Overall, mercury credits are a key component of emissions trading programs aimed at reducing mercury pollution and protecting human health and the environment from the harmful effects of mercury emissions.
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Greenhouse gas emissions trading
Emissions trading is a market-oriented approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. It is a cost-effective way to tackle climate change as it incentivizes innovative technology and economic growth while improving the quality of life and promoting investments in clean, affordable energy.
Carbon emission trading, also called a carbon market, emission trading scheme (ETS), or cap and trade, is a type of emissions trading scheme designed for carbon dioxide (CO2) and other greenhouse gases (GHGs). A form of carbon pricing, its purpose is to limit climate change by creating a market with limited allowances for emissions. Carbon emissions trading is a common method that countries use to attempt to meet their pledges under the Paris Agreement, with schemes operational in China, the European Union, and other countries.
In an emissions trading scheme, a central authority or governmental body allocates or sells a limited number (a "cap") of permits that allow a discharge of a specific quantity of a specific pollutant over a set time period. Polluters are required to hold permits in amounts equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell them.
The European Union's Greenhouse Gas Emission Trading Scheme (or EU emissions trading scheme EU ETS), introduced in 2005, has demonstrated significant success, with emissions from covered sectors decreasing by approximately 40%. In 2023, an important reform was introduced: the Carbon Border Adjustment Mechanism (CBAM). The primary goal of the CBAM is to ensure that the European economy is not hurt by the imposed CO2 emissions trading cost. The introduced mechanism works by imposing carbon costs on certain imported goods based on the amount of carbon emissions embedded in their production.
In 2023, the value of the global carbon market reached a record high of 881 billion euros (approximately $949 billion), representing a 2% increase from the previous year. The European Union Emissions Trading System (EU ETS) remains the largest carbon market based on value, accounting for approximately 87% of the global market size in 2023.
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