Advanced countries have been on the fore front in advocating for Kyoto Protocol of 1997. In the USA, the Chicago Climate Exchange has been on the frontline as an operator of the emission trading scheme. The Chicago Climate Exchange (CCX) is legal binding actually a first voluntary GHG reduction and also a trading system that aims to emit and offset projects in the Brazil and the North America. Such a scheme helps achieve reduction goals through a cost effective means and via trading emission allowances between the available participants.
The Chicago Climate Exchange has proclaimed and described itself as the rules based greenhouse gas emission reduction when it comes to the trade systems. It also adds that it is in essence the first in the world and not only in North America and that it is voluntary and completely abides to all the legal demands. For CCX, they use the Carbon Financial Instrument that is the CFI as their unit for and of trade. This CFI represents 100 tCO2e. These Carbon Financial Instruments can be based on credit allowances which are issued by emission of members which is analyzed and determined on the baseline emission and the reduction goals by the exchange or further still by the offset credits which are generated from the qualification to the projects seeking to reduce the emissions. The commitments by members can be met through internal reductions which can be achieved through purchase of allowances from the other members or the purchase of offsets.
CCX has provided a list of the eligible offset project in their scheme. They are, agricultural soil carbon, agricultural methane, landfill methane, forestry carbon, fuel switching and energy efficiency, rangeland soil carbon, renewable energy, coal mine methane, and lastly the ozone depleting substance destruction. Chicago Climate Exchange has accepted forestry-based carbon offsets which they categorize into managed forest projects, long-lived wood and afforestation. Under the afforestation projects, eligibility to earn CCX credits is influenced by direct human-induced conversion of degraded or non-forests into forested regions. To qualify for this, the project should have begun after or on 1st January 1990. There should be no tree biomass removal during the CCX market period. The landowners are further expected to have signed a contract in agreement that the land will be managed as a forest for at least the 15 years since the day one is enrolled.
Under the category of long-lived wood products, CCX entities acquire eligibility to receive carbon offsets that are long-lived and the source land is certified as one that has been managed sustainably and the carbon rights have been through a provided sales contract. The owners to the forests are required to provide proof that their land holdings have been certified from schemes and agencies which have been endorsed by PEFC Council or any other certification scheme or agency that the CCX Committee on Forestry has accepted and approved. In addition, Chicago Climate Exchange has established rules that issue offsets that develop from forest conservation and widely-spaced tree planting which has been combined by afforestation. This joint projects that incorporate avoided deforestation, forestation and conservation of forests projects are required to be on a site contiguous to the project site of afforestation.
In the market participants’ considerations, CCX had over 350 members as of July 2008. These ranged from major US corporations to municipal governments to farmers unions and the aggregators. Chicago Climate Exchange sustains three categories of membership. The first category is the full membership under which the commitments are audited and supervised by NASD and they have totally significant direct greenhouse gases emissions. In addition, this membership provides that those who have been members and fully participative over the past four years should focus to reducing the emissions by 2% additional while the new members target the 6% reduction margin. The second category involves the associate membership that has negligible direct GHG emissions. Examples are amongst others, service organizations and office based organizations. The last category encompasses participant members who are liquidity providers, offset aggregators and project developers who target trade on the exchange with the sole purpose being to comply with the provided CCX emissions reduction schedule.
Emission Trading Scheme in China: Shenzhen
In relation to emissions trading scheme, China will always remember June 2013 as the first mandatory emission trading scheme in their country. This was initiated in Shenzhen by the National Development and Reform Commission. This ETS in Shenzhen acts as an indication that by 2014, up to 700 million tons of carbon will have to be accounted for as Hubei, Guangdong, Chongqing, Tianjin, Beijing and Shanghai seem to follow the same.
China is the world’s largest emitter of carbon. When it launched the first trading scheme, it demonstrated its desire and commitment to reduce possible pollution from greenhouse gases. The Shenzhen Scheme reports that it will be mandated with the duty to have an emissions quota that shall benefit and profit from selling permits in excess to firms if they emit below the quota allocated. Considering that this is only one scheme in China and that it has only begun, it will only cover 38% of the total emissions coming from the city and will some extent have minimal impact in producing significant emissions reductions.
There is need that China cuts its emissions. Shenzhen has set a target for the carbon emissions that it seeks to reduce. It covers up to 635 companies which include amongst others giant electronics firm, Huawei and PetroChina. All these companies get on average allocations of a 100m tones of carbon in the next three years to come and this will mathematically represent what will be 30% reduction in the emissions per unit of the total output. The projections indicate that the exact amount will be determined on their production on services and goods an indication that there will be possible adjustments that will develop at the end of the trade. Analysts are of the opinion that 100m allocations is 10m much more than what the firms and companies were already permitting between 2013 and it would probably progress to 2015. Looking at what China and this scheme offer, it is evident that the process is continuous and that Shenzhen is one of those stages. The first step occurred in 2006 to 2010 which introduced a cap to control on coal output. In 2011 to 2015 the emission trading scheme has been developed at Shenzhen which caps on the total energy consumption. There will thus be a carbon cap that will seek to provide a proper and much advanced national ETS when 2016 to 2020 kicks in.
China’s central government has made plans around Shenzhen in order to roll out what will be an experimental carbon trading programs to be implemented before 2014. The need for this could mostly be motivated by the mere fact that China emits most carbon which almost matches the rest of the world’s countries combined. The central government will be informed from this project on how local authorities can possibly adopt policies that emit low carbon.
Proving Comment
Both China and the USA are amongst the most influential countries in the world at the moment. The USA through CCX has been in control over the carbon emissions. China has not been on the fore-front with this but on 2013, it has demonstrated the far it is willing to go in these kinds of projects to help in the market-based approach to control possible pollution to the world’s environment through provision of economic incentives that will seek to reduce in the pollutants emissions. The achievements that Chicago Climate Exchange has witnessed are more impressive, convincing and influential as compared to what China through Shenzhen has achieved. This can be related to the fact that the scheme in the USA has operated for many years unlike the one in China which is yet to get to hit its 6 months age.
The two have however indicated presence of a central authority which has been setting limits on the possible pollutants that should be emitted. The two operate through selling of the cap or limit in form of permits of emission indicating the right to discharge or emit specific volume of a specified pollutant. While there are varying types and forms of pollutants, the main one that the two schemes have indicated and seem to pay greater attention to is carbon.
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