Carbon market mechanisms provide a transparent and liquid market-place for carbon credits generated from legitimate carbon projects, such as REDD+ projects – Visit the REDD+ Project page
There are a number of regional schemes embracing project activities in addition to allowances as a means to reducing emissions and placing a price on carbon. These include the European Union Emissions Trading Scheme (EU ETS), New Zealand’s Emissions Trading Scheme, Australia’s Clean Energy Future legislation, California’s Assembly Bill 32 for Greenhouse Gas (GHG) reductions via a cap and trade scheme, forming part of the Western Climate Initiative (WCI) and China’s environmental objectives for 2011-2015.
The European Union’s (EU) Emissions Trading Scheme (ETS) is the cornerstone of the EU’s efforts to meet its obligation under the Kyoto Protocol. It covers more than 12,800 energy intensive facilities across the 27 EU Member countries accounting for approximately 45% of the EU’s carbon dioxide emissions. It is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted. The limit or cap is allocated to firms in the form of emissions permits (or carbon credits) which represent the right to emit or discharge a specific volume of the specified pollutant.
Firms are required to hold a number of permits equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission permits must buy permits from those who require fewer permits. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those who can economically reduce emissions will do so, achieving the pollution reduction at the lowest cost to society.
On 10 July 2011, the Australian Government announced a fixed price on carbon will be enforced from 1 July 2012 transitioning to a cap and trade trading scheme from 1 July 2015 covering approximately 500 entities. During the initial “fixed” phase, there will be a fixed price of AUD23/tonne increasing at 2.5% per annum and a floor price of AUD15/tonne from 1 July 2015.
California (autonomously and as part of the WCI) has passed Assembly Bill 32 for GHG emissions reductions which includes a cap and trade mechanism for carbon. The Cap and Trade mechanism is planned to go live in January 2013 with the legislation allowing for carbon credits developed under certain voluntary standards. It is anticipated that Climate Action Reserve (CAR) and the Verified Carbon Standard (VCS), particularly for land-use methodologies, will be included. Furthermore there are plans to accept forestry based credits from Mexico and Brazil, with both countries actively establishing domestic carbon mechanisms with emphasis on land based carbon activities, particularly forestry.
The Western Climate Initiative (WCI) is a multi-stakeholder framework, across Canada, USA and Mexico, to structure and implement legislation to reduce emissions in each of the member states, with market mechanisms, including trading, as a core component. Once California goes live, it is anticipated that each of the other states planning to participate in the WCI will undertake to commence their respective schemes, utilising the California cap and trade as a starting template, with continuity across all WCI stakeholders.
As an integral part of the 12th Five-Year Plan, China has set carbon intensity reduction targets and a commitment to utilise market mechanisms to drive domestic carbon efficiency. The National Development and Reform Commission (NDRC) confirmed that China will pilot six emissions trading schemes by 2013, and set up a national trading scheme by 2015. This represents potentially the largest domestic emissions market globally, once established.