I recently came across a paper I wrote for an environmental policy course I took in college. It's about the European Union Emissions Trading System (EU ETS), the system's successes and criticisms, and the institutional framework of the European Union. You will notice that some of the information may be outdated, but most of it is still relevant. I took out citations and touched it up a bit for readability and formatting purposes.
It's about 11 pages long, so I've decided to make it into a series. Here is part 1, which includes the paper's abstract and a quick background on cap and trade systems.
It's about 11 pages long, so I've decided to make it into a series. Here is part 1, which includes the paper's abstract and a quick background on cap and trade systems.
The European Union Emissions Trading System (EU ETS) for reducing carbon dioxide emissions is a work in progress. It remains to be seen if they will meet their targets (21% lower emissions in 2020 than in 2005 and 43% lower by 2030) and if those targets could have been lower and still been reached. Some countries in the EU seem confident they can meet or exceed expectations. The success of the program ultimately depends on the scarcity of pollution allowances in the market. As supply diminishes, the price of carbon dioxide will go up. Polluters will then have incentive to reduce emissions and develop innovative ways of doing so. However, since it is difficult to predict future emissions and even tougher to set the appropriate number of allowances, especially at the outset, the EU has their work cut out for them. Thus far, the program has resulted in measurable reductions in carbon emissions. Although it has received criticism for its inefficiencies, I believe it should serve as a model for all other carbon cap and trade programs. Australia, Canada, China, and India should all take note as they begin to experiment with carbon cap and trade programs of their own.
What is Cap and Trade?
Cap and trade is a regulatory system designed to reduce emissions of air pollutants. A government sets a limit for total emissions, known as the “cap”, and gives emitters, such as utilities and manufacturers, permits allowing them to pollute. The polluters can then “trade” these permits amongst themselves. The polluters that reduce their emissions can sell their allowances to the polluters that don’t reduce their emissions. It is a market-oriented approach to curbing emissions, rather than, say, through a direct tax.
Cap and trade rewards those who have the means to develop new technologies and methods for reducing emissions by allowing them to sell their permits to other polluters. The polluters who do not reduce emissions benefit because the permits they buy from other polluters are cheaper than paying a direct tax on emissions or retrofitting their infrastructure to achieve reduction targets. In the end, emissions and economic impacts are reduced. The economy benefits from the innovation that is required to develop emission-cutting technologies and the Earth and people benefit from cleaner air and a stable climate.
Cap and trade is a middle ground for environmentalists and those who support industry. It reduces emissions while lowering the cost for industry to comply. A good example of such a program is the United States’ sulfur cap and trade program of the 1990’s. This program, also known as the Acid Rain program, reduced sulfur dioxide emissions by millions of tons annually. Not only that, it did so at a fraction of the expected costs.
The European Union has such a program for carbon dioxide - a major greenhouse gas - known as the European Union Emissions Trading System, or EU ETS. It is the first and largest of its kind in the world. The system is almost ten years old and continues to expand every year.
More on the system itself later. Now, more on why we need cap and trade programs.
Why Cap and Trade?
The reason for pursuing such regulatory programs is to mitigate climate change and the subsequent impacts. Climate change is the result of the build up of greenhouse gases in our atmosphere. They are trapping more and more heat originating from the sun, triggering an increase in average global temperatures, rising sea levels, and more severe weather events.
Greenhouse gases such as carbon dioxide and methane are naturally occurring and already exist in our atmosphere. They are beneficial at the right concentrations. Too little of them, and our planet would be too cold to inhabit. Too much of them, and our planet would be too hot to inhabit, like Venus. It is a perfect balance. But this balance is being disrupted by human activities, mainly emissions of carbon dioxide and other greenhouse gases.
There should no longer be any doubt that humans are to blame for climate change. However, just in case you are one of the rare skeptics, check out the Berkeley Earth Project, a study led by a physicist at the University of California, Berkeley. The leader of the study was a skeptic himself, and just like others who doubted the science, his skepticism was fueled by the urban heat island’s effect on temperature readings and the alleged doctoring of data, as well as other factors.
The preliminary results from this study are in - and they are indisputable. The temperatures are rising and humans are to blame. The data gathered by the Berkeley team are almost identical to the results of all other climate studies, including those from the Intergovernmental Panel on Climate Change (IPCC).
In addition, they note that not all locations on Earth are getting warmer. About one-third of the temperature stations showed cooling over recent decades (which is why I call it “climate change” and not “global warming”). If the results of this study aren't enough to sway you, then hopefully the historic weather events of the last few years will. And if those do not convince you, then you should at least get used to them. For it is not the few degree Celsius rise in temperatures around the globe that concerns scientists and world leaders, it is the accompanying changes to Earth’s climate, surface, and processes.
Energy continues to be added to the system and we are in for some much more severe and longer-term effects. Because Earth’s climate and spheres are sensitive to even the smallest variations in temperature, we have many other problems heading our way. Perhaps the most problematic will be extreme weather events. These include longer and more devastating droughts, floods, and heat waves. We will also experience stronger storms. These have serious implications for local economies, water security, and food production.
As the Arctic glaciers melt and water in the oceans heats up and expands, we could witness sea-level rise by as much as a few meters by the end of this century and the mass migration of people from coastal cities to higher ground. Upon further warming, methane deposits that are currently locked away at the bottom of the oceans or in permafrost could be released in massive amounts, exponentially accelerating the greenhouse effect. Biodiversity loss from species extinctions will also accelerate, as some plants and animals are unable to adapt to such rapid changes in their habitat.
We face many serious problems as a result of climate change. It's a global issue and action must be taken.