Carbon Trading
Jason Sagginario, Perla Plange, Blaine Moran, Daniel Santiago
DeVry University

With the threat of global warming at our door steps one way that organizations felt they could offset the amount of pollution they produce is to invest into carbon emissions trading. This is done by buying and selling environmental services of greenhouse gases (GHG) from our earth’s atmosphere which is done by eco consulting firms around the world. This trade is done with carbon credits with one credit being equal to one ton of carbon. “This idea is to reduce the amount of carbon an industrial or commercial company processes lowering their overall emissions or carbon footprint.” (Souchik, 2012 This form of trading is a global process where individuals, industries, and countries all over the world share in the fair market trade of carbon. As nations and society progresses in technology and industrial advances we produce more carbon polluting gases that are negatively affecting the earth’s atmosphere. With carbon being the driving force in polluting gases and what to be said as the main cause for global warming, this is where companies felt they could make an impact in the world and also an impact in their pockets. “The main reason for climate change is the increase in greenhouse gases (GHG) emissions cause by anthropogenic activities (IPCC, 2007).” (Smyth, 2013) Greenhouse gases are commonly known as carbon dioxide. This comes from the burning off of fuels. Then from the carbon that is emitted from burning fuels is what harms our earth’s atmosphere causing the scare for global warming.
The use of coal, and natural gases where carbon is stored and the clearance of large masses of land has sky-rocketed the amount of greenhouse gases emitted in the last century. With organizations such as the steel, cement, fertilizer, and textile industries there will always be mass emissions of carbon. “These companies are said to be the top organizations that contribute by 60-70% to the effects of greenhouse gases and are ruining our atmosphere.” (Lavery, 2013) The major GHG’s are carbon dioxide, methane, nitrous oxide, and hydro-fluorocarbons. These gases contribute to the atmosphere’s ability to trap in infrared energy having a negative effect on the earth’s climate change. The processes of these companies are believed to have played a major role in ruining our atmosphere and the lead cause to global warming. With these changes it is believed that many of our natural processes will be highly affected. Some of these processes include: agricultural production and rising sea levels. This has helped lead to the interest in carbon trading and efforts to help reduce the amount of GHG’s that are emitted into our earth’s atmosphere. With rising concerns across the nation about GHG being emitted something needed to be done. Though emission has gradually reduced the amount of CO2 is still increasing. So as these numbers have been a concern among most developed countries they began to follow the United Nations Framework Convention on Climate Change (UNFCCC) which was making efforts to reduce the GHG’s being emitted by limiting companies to how much carbon they can emit and they believe this would reduce the affects to climate change. The UNFCC followed what was called the Kyoto mechanisms. These mechanisms were started in Japan and followed three basic rules for emissions reduction.
The three Kyoto mechanisms are:
Joint implementation
Clean Develop Mechanism
Emissions trading
The nations that participated in these methods had a five year commitment to reduce emissions. Parties involved were able to buy units giving them credits in the amount pollution that they were producing. The units were known as: * A removal unit (RMU) on the basis of land use, land use change forestry (LULUCF) activities such as reforestation. * An emissions reduction unit (RMU) which was generated by a joint implementation project * A certified emission reduction (CER) generated from clean development mechanism activity project.
These units of trade were logged and tracked by the Kyoto protocol. An international recording kept track of the trades between countries to ensure safe transactions. The Kyoto protocol defines Joint Implementation. Countries that have an emission reduction or commitment can a limit to earn an emission reduction unit (ERU) through emission projects allowed by the Kyoto protocol. Some countries like Costra Rica are using hydroelectric power to reduce emissions. “The country generates more than 90 percent of its energy from renewable sources, mostly hydroelectric dams.” (Nicole, 2013) These credits are measured in units; each unit is equal to one ton of CO2 and helps to meet the goal of the Kyoto project. “Joint implementation offers Parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host Party benefits from foreign investment and technology transfer.” (From the unfccc.int)
Another item the Kyoto protocol defines is The Clean Development Mechanism. It gives countries that are reducing emissions or limit their commitment the ability to implement projects of reducing emissions with developing countries. These projects are give certified emission reductions (CER) credits which are sellable and also measured by one ton of CO2 per unit. Each one of these units are a step closer to the Kyoto goal. This credit scheme is used globally and is the first of its kind providing a standard for others to follow. “A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers.” The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.” (From the unfccc.int)
The CDM method is meant to benefit both the developing and developed countries. The participation in the CDM is completely voluntary. The developed countries assist in the developing countries in their ultimate goal of the convention. These goals must show a real measurable long term contribution that that country is making towards the efforts of reduced emissions that will help in the mitigation of climate change.
An advantage for developed countries that invest in developing countries to contribute in the CDM is that they receive units for the result of lowering emissions. With the CDM reducing costs for developed countries it also reduces the cost for developing countries with the help of investors. This is only recognized through long term obligations by the countries involved. Through the CDM large projects are not taken lightly and ad attractions for investors into these projects for lower emissions.
The third point the Kyoto protocol defines is Emissions Trading. Any country that has excess emission units are allowed to sell them to countries that are not meeting their goals. Being that carbon dioxide is the most produced in greenhouse gases this is where the term carbon trading came from. “Carbon is now tracked and traded like any other commodity. This is known as the "carbon market”. (From the unfccc.net)
Only Annex parties in the Kyoto protocol can participate in the emissions trading. These parties are allowed to trade when it does not affect their overall goal in units. These units are in four different terms. The first being an assigned amount unit (AAU), second is a removal unit (RMU), third is an emissions reduction unit (ERU), and lastly a certified emissions reduction (CER).
Today there are many companies that buy and sell carbon credits to companies small and large. This is done from the lowest individual level to the largest commercial level possible. Many companies that are involved in the process of lowering their carbon footprint do this on a voluntary basis. They want to be able to say they are an eco-friendly company and how they are doing their part in helping save the earth’s atmosphere. Different countries have different targets in reducing emissions. Within these countries industries and individuals have their own targets. When an organization does not use up its quota and stay under target of carbon credits they can sell them in the carbon market for carbon trading. Now organizations who cannot meet their target buy into carbon credits. By trading carbon credits it allows individuals, industries, and countries to meet their overall target. While our demand for energy is increasing the total emissions that are produced must remain within the cap. This creates the need for the carbon market.
The industry is known to have two forms of carbon credits. The first is carbon offset credits (COC’s). “The carbon offset credit comes in the form of clean energy.” (Gharie, 2013)This is where an individual, industry or country uses things such as solar, wind, hydro, and biofuel in their energy production. Using this form of clean energy gives a certain amount of credit that organizations can use towards their carbon footprint. The second type of credit is known as carbon reduction credits (CRC’s). These credits consist of the collection and storage of carbon from our atmosphere through bio sequestration (reforestation, forestation). Whatever surplus is left over is sold to individuals, industries, and countries to offset the amount of carbon they are producing and is said to reduce their emissions. Both of these methods are accepted as ways to reduce emissions and GHG’s in our global carbon emissions crisis.
While many might see carbon trading as something that is benefiting industries and countries by reducing their carbon footprint, I think there is a lot more to be said. Regardless of what someone produces or doesn’t produce they can say it is decreased or increased by the purchase of a credit. A company that is over their emission target by several tons is said to be allowed to purchase credits to reduce their emissions. I do not buy into this for one minute. Whatever pollution is produced is an actual number, you can just purchase a credit and say your number is less. This is just another way that investors and markets to produce another money making scheme.

References
Gharaie, M., Nan, Z., Jobson, M., Smith, R., & Panjeshahi, M. (2013). Simultaneous optimization of CO2 emissions reduction strategies for effective carbon control in the process industries. Chemical Engineering Research & Design: Transactions Of The Institution Of Chemical Engineers Part A, 91(8), 1483-1498. doi:10.1016/j.cherd.2013.06.006
Lavery, P. S., Mateo, M., Serrano, O., & Rozaimi, M. (2013). Variability in the carbon storage of seagrass habitats and its implications for global estimates of blue carbon ecosystem service. Plos ONE, 8(9), 1-12. doi:10.1371/journal.pone.0073748
Nicole, W. (2013). Kick back, relax, offset your CO2. Earth Island Journal, 28(3), 10.
Smyth, B., Crilly, A., & McDowell, K. (2013). Water efficiency as a means of reducing carbon emissions in Northern Ireland (NI) water. Journal of Water Supply: Research & Technology-AQUA, 62(8), 525-533. doi:10.2166/aqua.2013.061
Souchik, L. E. (2012). Accounting for emissions trading: How allowances appear on financial statements could influence the effectiveness of programs to curb pollution. Boston College Environmental Affairs Law Review, 39(2), 475-501.
United Nations Framework Convention on Climate Change (N/A). The mechanisms under the kyoto protocol: emissions trading, the clean development mechanism and joint implementation. Retrieved on Feb 3rd, 2014 from https://unfccc.int/kyoto_protocol/mechanisms/items/1673.php