ANALYZING CARBON EMISSIONS TRADING: A POTENTIAL COST EFFICIENT MECHANISM TO REDUCE CARBON EMISSIONS

摘要

The growing interest in emissions trading systems corresponds to a continued steady rise in greenhouse gas (GHG) emissions into the atmosphere threatening the world with dramatic climate change. The United Nations Framework Convention on Climate Change creates a possibility for global cooperation in fighting climate change and lays the framework for international efforts to reduce GHG emissions. Through the Kyoto Protocol, the international community has recognized the possible high cost associated with reducing GHG emissions and, as a result, allowed ratifying countries to use flexible mechanisms including emissions trading, joint implementation, clean development mechanism, and joint-fulfillment, in addition to domestic reduction efforts to limit compliance costs. Based on the realization that GHG emission reductions have the same effect regardless of geographic location, the flexible mechanisms allow participants to offset their own emissions by purchasing allowances from other participants. Carbon emissions trading, one of the Kyoto Protocol's flexible mechanisms, presents a promising tool to limit global emissions of GHGs that cause climate change. Questions still remain whether carbon markets provide a cost-efficient and environmentally effective method for reducing GHG emissions. Ideally, emissions trading reduces the cost of meeting emissions obligations by placing a monetary value on GHG emissions and using the flexibility of the market to allow participants to decide whether it is cheaper to reduce emissions or to purchase excess allowances from others. Emissions trading holds the promise to correct a market failure that allows companies to avoid incorporating global environmental costs in the cost of production. This Comment examines the status and effectiveness of the current carbon markets and their ability to create flexible and cost efficient methods to reduce emissions. The Comment concludes that emissions trading can provide an import cost-efficient mechanism to lower the cost of reducing global GHG emissions to levels that would prevent catastrophic anthropogenic climate change. However, without the incorporation of China and the United States, the world's two largest polluters, the carbon markets may serve as a successful market tool and example of the efficiency of an open market to cost-efficiently solve environmental problems, but will do nothing to curb GHG emissions and limit the effects of climate change.