What are Emissions?
In simple terms, emissions are the release of gases and particles into the atmosphere as a consequence of man-made or natural processes. The production of heat, light, electricity, steel etc. almost always leads to the production of something else, some of which are particularly poisonous to life on our planet. These bi-products are often in the form of gases and are known as Greenhouse Gases or GHGs.
Why Are GHG Emissions a Problem?
For at least 150 years, and particularly since the developed world was industrialised, GHG emissions have consistently increased. In this same time, global temperatures have risen – an effect known as global warming. One of the reasons for this rise is because the GHGs emitted upset the delicate gas balance of the ecosystem which shields us from the more harmful effects of the sun – and this includes temperature increase which, in some areas, is already killing plants, animals and organisms. It is now widely accepted that if GHG emissions continue to increase, or even remain at present levels, it will not be possible to sustain life on our planet.
Tackling Climate Change
Climate Change or global warming is something that has been caused by humans and it is in our power to put it right. As a result, over a decade ago a large number of countries across the world joined a treaty - the United Nations Framework Convention on Climate Change (UNFCCC). The purpose of this treaty was to assess how to tackle global warming and how to deal with further temperature increases. More recently the Kyoto Protocol, which is an addition to the treaty and has more stringent legally binding measures, was approved by a number of nations. In addition, in January 2005 the European Union Greenhouse Gas Emission Trading System (EU ETS) commenced operation. It is the largest multi-country, multi-sector Greenhouse Gas Emission Trading System world-wide.
What is the Kyoto Protocol?
The Kyoto Protocol applies to 37 developed nations and the EU, all of which agreed to it, and sets binding targets to reduce GHG emissions. These targets are expressed in the form of allowed emission levels or ‘assigned amounts’ for each country in order to reduce emissions of the six main GHGs by approximately 5% against 1990 levels in the period 2008 – 2012.
The six GHGs covered are :
- Carbon dioxide (CO2)
- Methane (CH4)
- Nitrous oxide (N2O)
- Hydro fluorocarbons (HFCs)
- Per fluorocarbons (PFCs)
- Sulphur hexafluoride (SF6)
The allowed emission levels are then divided into ‘Assigned Amount Units’ (AAUs). If a country has spare unused emissions units, it is allowed under the Kyoto Protocol to sell these units to countries or private entities that have exceeded their targets. This ability to sell unused allowances means that the Kyoto Protocol effectively created a cap and trade system and a new commodity for emissions reductions / removals which is now tracked and traded like any other commodity. Because carbon dioxide is the principal GHG, it is known as the ‘carbon’ market..
What is Cap and Trade?
It is widely recognised that it is more effective, commercially, to encourage and persuade rather than dictate. And this, in effect, is exactly how Cap and Trade works. It caps the level of allowable emissions and encourages parties to invest in projects and schemes which offset emissions and trade unused allowances and offsets with each other. As such, successful emissions reductions can actually reduce costs (electricity cost for lighting, for example) and provide parties with units that they can trade (sell), thus generating additional revenues. This, when combined with hefty fines for non-compliance, makes emissions reduction the most attractive option for participating parties.
Emissions Trading Registries
The Kyoto Protocol requires accurate monitoring of each country’s emissions and trades. Emissions Trading Registries track, manage and report on the Greenhouse Gas (GHG) emissions, trades and offsets that are undertaken by participating companies and installations. Those nations that signed the Kyoto Protocol are mandated to ensure that all registry transactions are logged in UN Climate Change Secretariat’s International Transaction Log (ITL) which ensures that transactions adhere to the Protocol rules. Furthermore, each nation is also required to ensure that participating parties submit annual emission inventories as well as national reports at regular intervals. Registries are, therefore, needed to manage this process and, within the EU, it is a legal requirement that each member state must have one.