Emission Trading Systems

Definition

Emission trading systems are market-based approaches to controlling pollution by providing economic incentives for reducing the emissions of pollutants. These systems allow countries or organizations to buy and sell allowances that permit them to emit a certain amount of greenhouse gases, thus promoting overall reduction in emissions while allowing flexibility in how reductions are achieved.

5 Must Know Facts For Your Next Test

1. Emission trading systems are designed to create a financial incentive for companies to reduce their greenhouse gas emissions by allowing them to trade emission allowances.
2. These systems can be national or international, with examples including the European Union Emission Trading Scheme (EU ETS) and California's Cap-and-Trade program.
3. By setting a cap on emissions, these systems help to ensure that overall pollution levels decrease while allowing companies with lower reduction costs to sell their extra allowances to those facing higher costs.
4. The effectiveness of emission trading systems relies on the accurate measurement and verification of emissions to ensure compliance and integrity within the market.
5. Critics argue that while emission trading systems can help reduce emissions, they may also allow some companies to 'buy' their way out of making real changes to reduce their carbon footprint.

Review Questions

• How do emission trading systems incentivize companies to reduce their greenhouse gas emissions?
  • Emission trading systems incentivize companies to reduce their greenhouse gas emissions by creating a financial market for emission allowances. Companies that lower their emissions can sell excess allowances to those who find it more expensive to cut back, encouraging overall reductions. This flexibility allows businesses to choose the most cost-effective ways to comply with regulations, ultimately promoting innovation and investment in cleaner technologies.
• Evaluate the role of cap-and-trade mechanisms in emission trading systems and discuss their impact on achieving environmental goals.
  • Cap-and-trade mechanisms play a critical role in emission trading systems by establishing a clear limit on total emissions. This cap encourages companies to find the most efficient ways to reduce emissions, as those who exceed their allowance must purchase credits from others. The impact on achieving environmental goals is significant; by ensuring that reductions happen where they are cheapest, cap-and-trade helps drive down overall emissions effectively while maintaining economic growth.
• Assess the long-term implications of emission trading systems on global climate policy and international cooperation.
  • The long-term implications of emission trading systems on global climate policy could be profound, fostering greater international cooperation among nations committed to reducing greenhouse gas emissions. By creating a shared market for carbon credits, countries can work together more effectively and establish common standards. However, challenges remain regarding equity, as wealthier nations may have more resources to invest in these systems compared to developing countries. Balancing economic growth with environmental responsibility will be crucial for ensuring that these systems contribute positively towards global climate goals.

Related terms

Cap-and-Trade: A type of emission trading system where a limit (cap) is set on total greenhouse gas emissions, and companies can trade allowances within that cap.

Carbon Credits: Certificates representing the right to emit one ton of carbon dioxide or equivalent greenhouse gas, which can be bought and sold in carbon markets.

Offsetting: A method of compensating for emissions by funding equivalent carbon dioxide saving projects elsewhere, such as reforestation or renewable energy projects.