Trading Carbon Credits

Emissions trading is the future of carbon credit trading markets all over the world. Various governments are developing schemes that reduce greenhouse gas pollution by letting the "market price" of carbon pollution to trade freely.

How does it work?

Does it work?

Emissions trading is not as complicated as you may think.

The origin of this system is in the Kyoto Protocol, Article 17:

The signatories, who have obligations under this Treaty, adopted on 11 December 1997, accept certain objectives to reduce or limit their emissions of greenhouse gases. Among these gases are:

* Carbon dioxide - responsible for 9-26% of the greenhouse effect
* Methane - 4-9%
* Water vapor - 36-70%
* Nitrous oxide - laughing gas 6% (300X stronger than CO2!)
* Ozone - 3-7%
* Nitrogen trifluoride (not covered by the Kyoto Protocol)

It is worth noting that methane (eg cattle farts and burbs!) are they more powerful greenhouse gas, but act and decompose faster than the longer term presence of CO2.

OK. So we have an acceptance that greenhouse gases are causing global warming, climate change and related to the Resulting effects.

Yes, I know there are skeptics, but we will proceed from this belief.

How do you achieve a huge profit with Carbon Trading?

Some industries (for example, coal-based power generators) are being told that for their particular industry sector only a total level of greenhouse gases will be permitted. If the industrial pollution generator produces more electricity than is permitted then they can buy carbon permits from other polluters under that level.

These permits will be priced by auction or polluting industries may find it more profitable to implement alternative, clean technology. Or ... go out of business. Whatever cost them less.

Governments can - probably will - use a schedule in which the "cap" on emissions are progressively lower in September as an alternative and low-emission industries increase.

It is believed to be an effective way to reduce emissions at the lowest possible cost to society. But it is not free! Modeling of the Australian emissions trading scheme predicts a 17% increase in power bills.

Besides because of the inevitable rising gas prices because of peak oil, emissions trading will increase them further. Transportation based on fossil fuels, including flights, is a major emitter of greenhouse gases. 

Australia is the latest country to implement these emissions rules in 2008. The Australian Sugar Producers Protocol Board is now working to implement an emissions trading scheme. The United Kingdom, Denmark, Norway and New Zealand are next up in 2010 to standardize these emissions rules. The European Union has the largest emissions trading market in the world.

But again, what is emissions trading?

It is the common agricultural policy and trade for an industry that produces excess carbon pollution.

It is also a government run system where the pollution of greenhouse gases are reduced by setting limits (the CAP) emissions from industrial sectors and allows purchases and sales (turnover) of carbon permits or credits.

How do you get a standardization for carbon credit trading?

Well, only some industries, for example, electricity generators from coal, are told that in their industry sector only a certain total level of greenhouse gases will be permitted. 

Governments can - probably - to implement a program where "cap" on emissions is set progressively lower, as an alternative, low-emission industries increase.

It is believed to be an effective means to reduce emissions at the lowest cost to society. But not without cost! Modeling of emissions trading scheme in Australia is expected to increase from 17% in energy costs.

Besides the inevitable gas prices go up because of peak oil, emissions trading will continue to grow them. Fossil-based transport, including air, which is the largest emitter of greenhouse gases.

As of early 2010, Barack Obama is having a lot of trouble convincing congress that his tax legislation to limit carbon emissions is a good idea. Republicans in Congress are blocking the president at every turn. The Democrats are showing tepid support for the leader of the government.

With unemployment at near record levels and budget deficits straining the pocketbooks of every taxpayer Obama will have a tough time selling free carbon trading markets in the United States anytime soon.