Posted 05 February 2010 - 12:08 AM
A trading scheme is also known as a tradeable Pollution Permits (TPP) which are example of a market-based instrument that can be used to lower pollution or emissions. The regulator decides upon a level of pollution for the entire industry and then distributes permits to pollute to all the firms in the market. The level of pollution is likely to be below the current level of pollution because otherwise it would not be binding. Upon receiving their permits, firms have three choices; the first is to buy permits from other firms so its pollution can remain constant (and above the level of permits it was issued), the second is to lower pollution equal to their level of permits, and finally the firm could reduce pollution below the level of its permits and could therefore sell the remaining permits on to another firm. Non-polluters can also purchase spare permits, thus reducing the maximum level of pollution possible within the industry. Also, this cost of abating pollution by a unit and purchasing another permit should be exactly the same so that the firm is indifferent between the two options.
In my opinion, TPPs are one of the most effective instruments available to policy makers in this area. Only by valuing environmental resources within a market framework, and assigning a cost to environmental pollution causes the firm to, in theory, act according to the equi-marginal principle.
With regards to Copenhagen, I have an upcoming essay on it, and I was at the demonstrations (hitch-hiked there from Manchester, UK!) so I've been following it quite closely. By the end of the summit, all the UNFCCC had come up with was the Copenhagen accord, an agreement between America, Brazil, India, China and South Africa that is not legally binding in anyway, but simply acknowledges the need for cuts. This acknowledgement for cuts is appreciated but simply not sufficient as any framework has to be legally binding in order to function at all.
In looking at the global issue there has become a three distinct groups of countries;
European Union members
Annex 1 countries under the Kyoto Protocol not in the European Union
Annex 2 countries under the Kyoto Protocol (which includes India, China and Brazil)
European union members have all been mandated emissions targets below Kyoto levels, and most countries were close to meeting Kyoto deadlines, and if not have met the deadline by now and continue to cut emissions. In a sense, EU members are 'ahead' in the race to cut emissions, and should find further adaptation well within their capability.
Annex 1 countries under the Kyoto Protocol not in the European Union including USA, Canada and Australia were all mandated to cuts by Kyoto though many failed to get anywhere near these targets. The USA did not even ratify the protocol, undermining it somewhat and one of the most significant positive outcomes of Copenhagen is that Obama has led the formation of this Copenhagen Accord.
Annex 2 countries under the Kyoto Protocol which includes India, China, Brazil and all of Africa were not mandated to emissions cuts under Kyoto, and therefore the fact that India, Brazil and China are all on board with this agreement is also going to be significant. However, the African nations, along with Pacific Island and Caribbean Nations wanted $100m pledged in order to help them adapt to impending climate change.
There is a clear switch of emphasis between these two conferences was that Kyoto, in 1997, was about avoiding potential disaster, but not stopping anyone who wants to from developing. Now a clear shift has taken place, with the poorest countries in the world demanding money for the cost they will bear, of the problem, they say, the rich countries caused. The other significant development is that China, Brazil, India and America, (approximately half of the worlds population) have all agreed to hold further talks and sort a framework out.