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Carbon Trading Within Eu Essay

2504 words - 11 pages

Carbon Emissions Trading Market: Opportunities and Challenges in Creating A Market to Reach The Political Goal

Authors: Class: Date: Module: Lecturer Institute

Doreen K., Hari M., Lamberte I., MBAPT2011 26 March 2012 Managerial Economics The Hague University

- Confidential This document is confidential. Neither the document nor any of the information contained in this document may be reproduced or disclosed to any parties without the written permission of the authors.

Introduction Climate change is widely known to be the most important environmental problem for humankind on this Earth. As we know there is a limit with our atmosphere and the world’s economies are connected ...view middle of the document...

In 2005, the European Union implemented the European Union Emissions Trading Scheme (EUETS) in order to meet the emissions reduction targets agreed under the Kyoto Protocol (Salm et al.). Currently, the emissions market has one of the highest profiles of any commodities market and this seems certain to grow further. The growth of the emissions market profile have attracted the number of investors and authorized firms to participate

Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change aimed at fighting global warming. Furthermore, this Protocol is the first international implementation of a cap-and-trade scheme and defines articles related to emissions trading ( rohe, 2009).

1 | Carbon Emissions Trading Market: Opportunities and Challenges

more in the emissions trading, whether directly or otherwise. Carbon emissions trading has already been the intensive discussion that has raged over the need to comply with the Protocol, implementation strategies, and the detailed new instruments for climate protection. In reality, each country has its own different perception in terms of the goals of climate protection. In the real practice as stated in the international carbon emissions trading schemes such as the Kyoto Protocol and EUETS, Antes et al. (2011) added that the suboptimal negotiation of the cap with respect to total pollution minimization leads us to critically examine the proposition that a generous allocation of grandfathered permits by the regulator based on recent emissions might pave the way for dominant positions. As a result, the carbon markets established by these schemes will interact in complex ways. Cost-minimisation will be the fundamental motivation for trades among and across schemes, particularly at the entity level, but legal and institutional provisions, and broader political and strategic considerations, will also play a significant role in determining whether, where, when and how trades take place (Yamin, 2005). In this paper, through economic theory we will explain how created carbon emission market can reach a political goal of the involved countries.

Carbon Emissions Trading Carbon emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. Emissions trading specifically targets carbon dioxide and it currently constitutes the bulk of emissions trading. This form of permit trading is a common method that utilized by some countries to meet their obligations specified by the Kyoto Protocol. In economic perspective, pollution problems are caused by a lack of clearly defined and enforced property rights (US Congress, 1997).

2 | Carbon Emissions Trading Market: Opportunities and Challenges

Costs and Valuation Emitters of greenhouse gases do not face the full cost implications of their actions and this is the problem of climate change. There are costs that emitters do face,...

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