We understand that according to Kyoto Protocol annex I countries are committed to reduce the emissions level. But the
flexibility provided under the protocol allows countries to buy and sell their agreed allowances of greenhouse gas emissions. Highly polluting countries can buy unused “credits” from those which are allowed to emit more than they actually do. At micro level companies that need to increase their emissions must by credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Potential buyers of carbon credits are the entities which emit Co2 to the atmosphere and maybe required by the law to balance their emissions through mechanism of emissions reduction. On the other hand potential sellers of the carbon credits are two kinds of entities,
Entities that manage forest or agricultural land might sell carbon credits based on the accumulation of carbon in their forest trees or agricultural soils.
Business entities that reduce their carbon emissions may be able to sell their reductions to other emitters.
Marketisation of Environment
From the above analysis on emissions trading it is evident that that an attempt has been made under Kyoto protocol to find solutions towards environmental degradation using market tools. It may be noted it that emissions trading is already being used in US and EU, as a tool to check environmental degradation. As a consequence of Kyoto protocol emissions trading has got a boost. The carbon trading at London financial marketplace is expected to have grown into a market valued at $60 billion in 2007. The voluntary offset market, by comparison, is projected to grow to about $4bn by 2010.
There are active trading programs in several pollutants. In the largest trading scheme namely European Union Emissions Trading Scheme, which started on 1st January 2005, 362 million tonnes of CO2 were traded on the market for a sum of $7.2 billion, and a large number of futures and options. Carbon emissions trading have been steadily increasing in recent years.
Can Emissions Trading Solve the Problem?
Those who favor the idea of emissions trading argue that emissions trading would lead to the reduction in emissions by those who can do so. This mechanism also involves lowest cost of emissions reduction to the society. But there is significant opposition to this mechanism. The critiques opine that emissions trading does little to solve pollution problems overall, as groups that do not pollute sell their conservation to the highest bidder. Overall reductions would need to come from a sufficient and challenging reduction of allowances available in the system. Likely this would occur over time through central regulation. Emissions Trading Scheme came under fire recently when some governments issued more carbon allowances than emissions during Phase I of the scheme. They have also been criticized for the widespread practice of grand fathering, where polluters are given carbon credits by governments, instead of being made to pay for them.
Critiques further argue that carbon trading places disproportionate emphasis on individual lifestyles and carbon footprints, distracting attention from the wider, systemic changes and collective political action that needs to be taken to tackle climate change. Thus according to them solution to the problem of environmental degradation is not emissions trading but a tax on polluters but it seems tax on polluters is not found to be feasible politically.
Apart from this there are significant scientific questions about efficacy of sinking and emissions trading program. We understand that part of the reason of global warming is excessive land clearing. Therefore restoring vegetation is thought to be the solution to the problem. But the note of caution here is that in the name of emissions trading old growth forests (which have slow carbon absorption rates) are being cleared and replaced with fast-growing vegetation, to the detriment of the local communities
Kyoto Protocol, Bali Convention and Looming Dangers for India
Though optimism Is being shown at the outcome of Bali convention on climatic change, as developed countries have been supposedly pushed to the wall and have been forced to accepts deep cuts in emissions (though without really quantifying the same). But the stand of US and it’s allies has thrown a challenge for developing countries specially India and China. Totally rejecting Kyoto protocol and refusing to accept reduction in emissions as per Kyoto protocol, US has demanded cuts in emissions by India and China. Given the fact that during the period from 1990 to 2004 CO2 emissions of India has approximately doubled, thanks to its efforts to improve standard of living and reduction in poverty. If US succeed in forcing India to reduce its emissions levels, our efforts towards growth would get jeopardised. And if instead we are forced to buy emissions credits, a significant portion of our fruits of growth would get transferred to the rest of the world.