EU-Canada S&T Relations

Climate Architecture after 2012:

Prospects for a Transatlantic Carbon Market?

bridges vol. 30, July 2011 / Feature Articles

By Andreas Tuerk

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What comes after Kyoto_small.jpgWhat comes after Kyoto and Copenhagen?

In many ways, the Copenhagen climate summit of December 2009 marked a departure from the practice of multilateral climate cooperation compared to the previous two decades. The Copenhagen summit aimed to agree on a new international treaty to reduce greenhouse gas emissions after the expiration of the current reduction targets in the Kyoto Protocol, which ends in 2012. The Copenhagen Accord, a set of decisions only taken notice of in Copenhagen, was driven by the US and strongly influenced by China and a few other emerging economies. It is characterized by a voluntary "pledge and review" system for emission reductions, by which countries propose voluntary reduction targets that are reviewed within an international process. However, there are no sanctions for failure to meet the targets. Such an approach is therefore fundamentally different from the current UN-based multilateral approach, and reflects the vision for international climate architecture as espoused by the US - which never ratified the Kyoto protocol - while the EU is still advocating that Kyoto-style top-down climate architecture be continued after 2012. A top-down approach is based on science - with internationally agreed-upon targets - as part of an internationally binding treaty such as the Kyoto Protocol.  Proponents of bottom-up approaches highlight the importance of flexibility, which they believe will allow each state to define activities that are technically, economically, and politically acceptable in light of local or regional conditions. However, bottom-up approaches may not provide the same degree of certainty of emissions reductions.

While the US never ratified the Kyoto protocol, in the EU the Kyoto protocol motivated the implementation of the European Emissions trading scheme (EU-ETS). The EU-ETS, operational since 2005, is the largest multi-country, multi-sector greenhouse gas emissions trading scheme worldwide, regulating about 10,000 facilities that currently emit around 2 Gt (gigatonnes - a billion metric tons) of CO2 per year. Within this cap-and-trade scheme, large industrial greenhouse gas emitters and electricity producers are required to hold a certain amount of emissions permits, each representing the right to emit a tonne of CO2. The total permits they are allocated by the regulator represent their emissions cap. Companies unable to meet their emissions target through internal actions, or only at high costs, must buy permits from those who pollute less or can reduce emissions more cheaply. These trading activities result in the pricing of CO2 permits. Under such systems, in theory, emissions reductions ought to be carried out where they are least expensive.  

In the United States in recent years, dynamic initiatives have been launched at the state level to implement greenhouse gas emissions trading schemes, especially on the east coast (Regional Greenhouse Gas Initiative) and the west coast (Western Climate Initiative). In addition, several legislative proposals for a federal system have been under discussion the past few years in the US Congress. On the other side of the globe, New Zealand has implemented an ETS that became operational in July 2010, Australia has proposed a national ETS, and Japan and South Korea are discussing the implementation of such a scheme.

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