Since the dawn of the Industrial Revolution in the late 18th century, the world has been spewing out greenhouse gases that now threaten the global ecosystem. The concentration of carbon dioxide in the atmosphere reached 379.1 parts per million in 2005, or 35 percent higher than the estimated level before the Industrial Revolution, a Meteorological Agency report said in November.
Market mechanisms under the Kyoto Protocol may become an effective way for countries to achieve the daunting task of curbing global warming while also finding financial rewards.
Below are basic questions and answers regarding the so-called Kyoto Mechanisms.
What are the Kyoto Mechanisms?
They are a set of three alternative measures to help countries achieve greenhouse gas emissions-reduction goals under the Kyoto Protocol.
Instead of directly curbing emissions, the Kyoto Mechanisms allow nations to win emission rights either by buying carbon dioxide emission credits in the marketplace or carrying out projects that help other countries cut their greenhouse gases.
Experts say the trade will also help transfer efficient technologies to states in need.
What do the three alternatives specifically offer?
Through the Joint Implementation method defined in Article 6 of the Kyoto Protocol, an industrialized country can obtain Emission Reduction Units by conducting emission controlling projects jointly with another industrialized country. The amount of ERUs granted a project is certified by the U.N. Framework Convention on Climate Change’s JI Supervisory Committee.
The Clean Development Mechanism defined in Article 12 of the protocol provides for developed countries to engage in project activities that reduce global warming in developing countries. In return, the developed countries get Certified Emission Reductions from the CDM board at the U.N. FCCC.
Emissions Trading, as set out in Article 17 of the protocol, allows the trade of carbon emission rights, in which highly polluting countries can purchase a portion of agreed allowances of greenhouse gas emissions, CERs and ERUs from countries with reduced or unreleased carbon dioxide.
When would a country use the mechanisms?
The Kyoto Protocol has initially issued the basic Assigned Amount Unit, the agreed allowance of greenhouse gas emissions for each country. For example, Japan must reduce its annual greenhouse gas emissions by 6 percent to 1.18 billion tons between 2008 and 2012.
A country can reach its goal by adding a combination of CERs and ERUs it obtained to its AAU, as well as attach its “sink” activities, or the amount of emissions absorbed by its forests.
If the sum fails to reach the protocol target, a country is “likely to be bound to a harsher emission goal in the post-Kyoto treaty that will begin in 2013,” said Satoshi Iemoto, a spokesmen for the Environment Ministry-funded Kyoto Mechanisms Information Platform.
How does the trading work?
CERs, ERUs and other units are traded in volumes of 1 metric ton of emissions. Transfers and acquisitions of the units are recorded via a central registry system under the Kyoto Protocol. Cutting down on greenhouse gas emissions would translate into financial profit, thus providing incentives for countries to consider and assist sustainable development.
Can a private company participate in the trade of carbon emission rights?
Yes. Nongovernmental organizations and other businesses with government authorization can participate in the trade. In such cases, a firm would register with its country and either purchase credits or obtain from it greenhouse gas-reducing projects such as the CDM. The gained permits can either be sold to the government or different companies for profit, or used by the firm to achieve its own emission-cutting goal.
Where are carbon emission rights being traded?
Local frameworks such as the European Emissions Trading Scheme have been operating for a while. The EU ETS, active since 2005, functions on its own unit of emission rights, called the EU Allowance Unit. Participating governments and companies, which get agreed upon greenhouse gas emission allowances, were involved in transactions amounting to a combined $24 billion in 2006, or 80 percent of the world’s emission credit sales.
An annual report by the World Bank released last May estimated that the global carbon market reached $30 billion in 2006, tripling its figure from the previous year.
What determines the market price of emission units?
Emission unit prices are determined by the supply-and-demand balance on the market, which is determined by a variety of factors.
For example, if a cold front is expected, electric companies will likely be forced to increase energy output. This will make it difficult for a country to reach is Kyoto Protocol goal, thus raising the demand for emissions rights and ultimately causing a price rise.
How will Japan make use of the Kyoto Mechanisms?
Unable to reach the 6 percent reduction goal through regular efforts, the government announced last November it has agreed to pay as much as ¥20 billion for 10 million tons worth of emission rights from Hungary. It was also reported earlier this month that Japan agreed with Russia to begin negotiations for transactions of emission rights.
The government has also approved 290 CDM and JI projects since 2002, in which Japanese companies join emission-cutting projects overseas.
Do the Kyoto Mechanisms have a downside?
While Japan will have to depend on the mechanisms to reach its Kyoto Protocol goal, some suggest that trading of emission rights is an excuse for industrialized countries to cut corners in the fight against global warming.
“I am in favor of emission rights trading within the country between businesses, but not in Japan purchasing them from overseas,” said Ryoko Seguchi, spokeswoman for the NGO Friends of the Earth Japan.
Emissions trading within the country would reduce Japan’s total greenhouse gas emissions, but purchasing such rights abroad will not only drain tax money but also detract from genuine efforts to cut domestic emissions, she said.
“Ultimately, it may lead to Japan not reducing its greenhouse gas emissions,” Seguchi said.