Carbon Trading: A General View

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During the course of their lifespan, humans were used to harvest what they cultivate by their own hands. However, this reality has changed with the development of technology especially with the beginning of the industrial revolution that has begun in the 18th century. The industrial revolution has encouraged the over-use of fossil fuels, which is a high-carbon economy, such as coal and natural gas. People began to dominate nature. They cut trees, they destroyed forests, and they overexploited almost any useful resource to an extent that their actions have exceeded the world’s carrying capacity. In 2007, the area that is available to produce renewable resources and absorb CO2, which is called “Footprint”, has exceeded the earth’s biocapacity by 50% (Alcamo et.al, 2010). This is true because the methods that people have adopted are unsustainable. In fact and according to the American Institute of Physics, it is predicted that by 2050, the demand of the world of energy will double due to population growth and to the industrialization of developing countries (Crabtree, 2004). Overwhelming facts have reached an alarming point that is leading to climate change or what can be called “the silent disease”. Climate change, which is caused by the emission of greenhouse gases such as carbon dioxide; water vapor; ozone; nitrous oxide and methane, has become the biggest concern of today’s world. It is getting the attention of almost all people. Scientists say that to avoid the effects of catastrophic climate change, we have less than 10 years to stabilize greenhouse gas emissions (Espersen, 2009). As a result, people, governments, and especially scientists are trying to find and develop new efficient methods to fight climate change and to find new solutions for the exhaustibility of the resources. In several nations, leaders are discussing targets to reduce greenhouse gases emissions (Pestiaus et.al, 2009). For example, the European Union has set a target that the emissions of 2020 to be 20% lower than of those of 1990 (Pestiaus et.al, 2009). Therefore, as an emergent market, emissions’ trading has evolved in the last few years, and it is predicted to expand in the near future (Hill et.al, 2008). Emissions’ trading is a market that enables the transition to a more sustainable economy, based on lower emissions of greenhouse gases, by providing economic incentives.

Often, we hear about carbon trading in the Kyoto Protocol. Carbon trading or carbon cap (or limit) and trade is based on two major factors: assets and liabilities. In assets, a carbon emitting business or firm minimizes its initial allowance of carbon emission and sells its surplus on the market. In liabilities, a business or a company buy extra allowances when it is faced by high costs to reduce its emissions. In other words, firms are required to have a certain number of permits or credits based on their emissions. Also, firms that are in need to increase their emission permits must buy from those who require fewer permits, and this exchange of permits is called trade. The exchange can occur between different regions of the same country or between different countries such as industrialized (Annex-1 parties) and developing countries (Non-Annex-1 parties). Moreover, permits can be sold through auction. It is sure that carbon trading is a dialectic topic because it has advantages and disadvantages.

Before doing my research about the obstacles of such a functioning market, I was able to foresee several barriers. First, finding a party to buy carbon credits from a seller could be an obstacle if the carbon trading was not managed well. Second, carbon price can collapse due to national freedom to allocate carbon quotas; thus, leading to a high carbon economy which is based on the use of fossil fuels. Third, carbon trading is a business, which means there will be always conflicts between the different parties. Fourth, politicians may unlikely to set emissions limit (or cap) low enough to assign carbon prices to the right level. Fifth, the fear for the future, in which there are greater opportunities for several clean energy projects. And the sixth or the last obstacle that I was able to foresee is that in carbon trading, there are fewer incentives for people to stop polluting; this is because carbon trading is optional rather being a must.

Now, I’ll list the obstacles that I found while doing my research. To begin with the market foundation: When it is believed that there is a lack of connections between markets, there is a decreasing in the capability of the development of such a market (Hill et.al, 2008). And when the markets are strongly connected, there is a high chance for liquidity to occur (Hill et.al, 2008). Now, concerning the integrity of the market, any unfavorable or unsatisfactory act that might bring negative comments, may risk undermining such a functioning market (Hill et.al, 2008). Plus, the carbon trading market still in its infancy; this means that the practitioners may lack experience thus affecting firms’ risk management and leading to a disorder in the market (Hill et.al, 2008). Moreover, carbon trading is present in a form of a single national system; and once a national system is present, an international system will develop as a “self-interested trade” rather than being an international agreement (Ellerman, 1998). Furthermore, carbon trading concept, being a familiar or a common business in the Kyoto Protocol, creates the problem of allocations of rights concerning who gets what, or which country gets what (Ellerman, 1998). This might creates conflicts between countries; thus, leading to failure of the international market for trading emissions of CO2.

If those obstacles were solved, carbon trading market will be successful in the near future. Such market leads firms to adopt the concept of low carbon economy- which is an economy that has a minimal output of carbon dioxide – thus, encouraging the concept of energy efficiency and the use of renewable energy such as wind; solar; thermal; geothermal; hydropower and biomass. According to several scientists, the level of concentration of carbon dioxide in the atmosphere must be less than 350 parts-per-million (ppm) for the continuation of life on earth, and the world has exceeded the safe level (Espersen, 2009). If managed well, carbon trading will be considered as an efficient tool to reduce the levels of greenhouse gases; thus, fighting climate change. Also, carbon trading, if managed well, will decrease the debt of climate change that humans have created. Indeed, as Pogo said during the Vietnam war:”We’ve seen the enemy and it is us. Suddenly, we are both the invading barbarians and the only ones to protect the city. Each one of us is at the center of the civilized world and on its edge” (Fennell, 2003).

References

Alcamo et.al, (2010). “The Living Planet Report”. WWF. Retrieved from

http://wwf.panda.org/wwf_news/?195695/Tropics-in-decline-as-natural-resources-exhausted-at-alarming-rate–WWF-2010-Living-Planet-report

Crabtree et. al (2004, December). “The Hydrogen Economy”. Physicstoday. Retrieved March1,

2011, from  http://tecnet.pte.enel.it/depositi/tecnet/articolisegnalati/1447/38648-

hydrogen_economy.pdf

Ellerman, D. (1998). “Obstacles to global CO2 trading”. Retrieved March 16, 2011, from

http://dspace.mit.edu/bitstream/handle/1721.1/3605/MITJPSPGC_Rpt42.pdf?sequence=1

Espersen, L. (2009, December 2). “Beirut’s call to Copenhagen”. Ministry of foreign affairs in Denmark.

Retrieved February 28, 2011, from

http://www.ambbeirut.um.dk/en/menu/AboutUs/News/BeirutsCallToCopenhagen.htm

Fennell, D. (2003). Ecotourism. 2nd edition. Routledge.

Hill et.al, (2008, March). “The emissions trading market”. Financial Services Authority. Retrieved

March 17, 2011, from http://www.fsa.gov.uk/pubs/other/emissions_trading.pdf

Pestiaus et.al, (2009). “Pathways to a Low Carbon Economy.” Version 2 on the Global Greenhouse Gas

Abatement Curve. Mickensey & Company. Retrieved March 12, 2011, from

http://www.worldwildlife.org/climate/WWFBinaryitem11334.pdf

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About Cherine Akkari

Professional volleyball player, Environmental Sciences graduate student (BSc Environmental Sciences, MSc Environmental Geography). I am often lost and found in Lebanon. Currently in Montreal. Also, you can visit me on http://adaptationandclimatechange.wordpress.com/

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