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- Emissions Trading - Definition
- How emissions trading works
- Emissions Trading Schemes in Operation:
Emissions Trading - Definition
Within the context of greenhouse management ‘emissions trading’ refers to the trading of permits which allow emissions of set amounts of greenhouse gases.
How emissions trading works
The most common emissions’ trading system is based on the ‘cap and trade’ principle. This requires a cap being placed on the total amount of allowable emissions, the distribution of this total between polluters, and the creation of a marketplace where owners of the permits can trade with each other.
From an economic perspective, ‘cap and trade’ is considered to be an efficient system, as polluters who take steps to reduce their emissions are able to sell ‘spare’ emissions permits to polluters who produce more emissions than their initial permit allocation allows. Importantly the environmental outcome is not affected as the total amount of allowances allocated is fixed.
Emissions Trading Schemes in Operation:
EU Emissions Trading Scheme
The EU Emissions Trading Scheme (EU ETS) is the largest multinational emissions trading scheme in the world and was the first to be introduced, in 2005.
The scheme is a core part of the EU’s strategy to reduce greenhouse gas emissions. It covers the most heavily polluting industries in Europe, including the power sector and energy-intensive industrial sectors and accounts for approximately 45% of European emissions.
Each European member state is required to set an emission cap for all installations covered by the Scheme. Installations are allocated allowances for a particular commitment period. The number of allowances allocated to each installation for any given period is set down in the country’s National Allocation Plan.
Phase I of the Scheme began on 1 January 2005 and runs until 31 December 2007. This phase has been heavily criticised as excessive permits were issued meaning participating companies had little incentives to reduce their greenhouse gas emissions.
Phase II will run from 2008-2012 to coincide with the first Kyoto Protocol commitment period.
UK Emissions Trading Scheme
The UK Emissions Trading Scheme (ETS) ran from 2002 to 2006 as a voluntary cap and trade scheme. It was the world's first economy-wide greenhouse gas emissions trading scheme.
Thirty-three companies (known as ‘Direct Participants’) voluntarily took on emission reduction targets to reduce their emissions against 1998-2000 levels. A number of large food retailers and food manufacturers were among the Direct Participants.
Carbon Reduction Commitment
In the ‘Energy White Paper’ issued on 23rd May 2007, the UK Government committed to take forward a carbon reduction commitment.
The then Secretary of State for the Environment, David Milliband said “we’re giving the go-ahead to the world’s first mandatory carbon trading scheme aimed at large commercial and public sector organisations, such as banks, supermarkets and central government departments. The new Carbon Reduction Commitment will be a cost-effective scheme that will save over a million tonnes of carbon per year by 2020, while enabling businesses to continue to show real leadership in tackling climate change.”
From a food and grocery perspective it is important to realise that many larger grocery retailers and food/drink manufacturers will be obliged to be part of this new, mandatory, cap and trade scheme.
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