Global Warming and Carbon Trading A brief morning seminar by: Diego Villarreal

Brief Outline  Global Warming and the Greenhouse effect  Greenhouse gases and Greenhouse potentials  Brief description of the Kyoto protocol  Carbon Trading  Impacts of this system on CO 2 emissions

Contrary to what is said in the popular media, our planet is warming up, and is likely to continue warming up in the next century. Therefore, Global Warming is a reality!!!!. Contrary to what is said in the popular media, our planet is warming up, and is likely to continue warming up in the next century. Therefore, Global Warming is a reality!!!!. Climate change is affected by a variety of factors such as solar radiation variations and the concentration of gases in the atmosphere. On average, Earth receives around 1.8x10^17 W of solar radiation over its entire surface area. On average, Earth receives around 1.8x10^17 W of solar radiation over its entire surface area. Earth is a blackbody. Incoming energy is re-emitted back to space through reflection and Blackbody radiation. Re-emitted radiation is described by the equation below

Greenhouse gases are gases that have the ability to absorb the long wavelength radiation emitted by the surface of the earth. Some of these gases are CO 2, CH 4, N 2 O and SF 6. In 1996, the Intergovernmental Panel on Climate Change (IPCC) concluded that “Human activities are changing the atmospheric concentrations and distributions of greenhouse gases and aerosols. These changes can produce a radiative forcing by changing either the reflection or the absorption of solar radiation, or the emission and absorption of terrestrial radiation” Inventory of U.S Greenhouse Emissions and Sinks: Office of Atmospheric Programs. US Environmental Protection Agency April 2002

The conclusions of the IPCC are not based on speculations, but on scientific data collected over a long period of time. As seen above, the concentration of CO 2 has increased dramatically since the industrial revolution, causing positive radiative forcing. Radiative forcing is defined as “The Change in the net radiation at the top of the troposphere occurring because of a change in concentration of atmospheric components or solar insolation”. Tomkiewicz, M.C.R. Chimie 9 (2006)

Positive Radiative Forcing implies an adjustment of the overall energy balance of the planet through an increase in average global temperatures. Various computer models written by the IPCC predict an average global temperature rise of ~ 2.4 o C as a result of doubling the CO 2 concentrations in the atmosphere. The IPCC also noted that the current concentrations of CO 2 have not been exceeded in the past 420,000 years, making the increase of CO 2 in the atmosphere an unprecedented event.

The emissions simulations were done at the Max Plank Institute for Meteorology. Commissioned by the IPCC for the 4 th assessment report. Even Under the most optimistic assumptions, the model suggests the Artic will be ice-free during the summer of 2090 Schiermeier, Q. Nature (2006), 439(7075),

In 1997 world leaders met in Kyoto Japan to shape, discuss and amend the United Nations Framework Convention on Climate Change (UNFCCC). The amendment to the UNFCCC, known as the Kyoto protocol, is an agreement under which Industrialized countries pledge to reduce their emissions of five greenhouse gases (carbon dioxide, methane, nitrous Oxide, Sulfur Hexafluoride, HFC’s, and PFC’s) by 5.2% compared to the Year The countries that ratified the protocol, agreed to meet this quota by the year As of the beginning of 2006, a total of 160 countries have ratified the Kyoto protocol. Among the countries that have NOT ratified the agreement are the US and Australia

Enter Carbon Trading As a way to meet the demands of the Kyoto Protocol and to establish a system of economic incentives, members of the EU created the Emissions Trading Scheme (ETS), under which companies can buy and sell equivalents of CO 2 emissions. Any reductions on the emissions of CO 2 could be sold as credits to parties who did not meet their emission quota, creating a dynamic market where everybody wins! In 2005, the EU ETS, involving 12,700 industrial organizations, came into action across the 25 member states. By 2007, the EU market is expected to be worth 10 billion Euros (~13 billion USD) Hopkin, Michael. Nature (2004), 432(7015),

In 2002, the UK set out a “pilot” ETS, where 34 companies sold to the government commitments to reduce emissions during the period. The participating companies, committed to lower emissions by 805 kilotonnes per year, for an economic incentive of £53.37/tonne of CO 2 equivalent ( tCO 2 e). The UK ETS is based on an “allowance” system, where a company holding one allowance can emit one tCO 2 e during one year. Allowances are tradable, so a company that is under its permitted emissions can sell its excess to a company with an emissions deficit. The emissions caps for the participating companies were decided based on the following formula: Baseline – Agreed Reduction = Cap Where the Baseline is the average of their emissions for the 3 years up to and including Heinen, R; Johnson, E. Environmental International 30 (2004)

After baseline emissions are verified by an external party, each participant is credited with allowances equal to its cap, for the five years of the UK scheme. If the participant submits a deficit of allowances, he is charged a fine of £30 per tCO 2 e, and his allowances for the upcoming year would be reduced. The surplus and deficit of allowances is one of the incentives for trading emissions, although a party with a surplus may chose to keep his allowances and “bank” them for a future year. In the UK ETS, trading started at around £12/tCO 2 e, which was much lower than the £53.37/tCO 2 e clearing price due to: £12/tCO 2 e, which was much lower than the £53.37/tCO 2 e clearing price due to: 1) Market Risk 2) Corporation Taxes Heinen, R; Johnson, E. Environmental International 30 (2004)

HOW WILL THE EU ETS WORK? The EU ETS will work in a similar way as the UK trading scheme did. The EU ETS will be divided into two sections, a pilot phase from , and a “normal phase” from Emission limits are established by National Allocation Plans, which have to be ratified individually for each EU member by the European Commission. Once the commission decides on the number of permitted emissions for each country, governments give away emissions allowances to different industrial sectors. Companies can trade their allowances in the international market if they are below their cap, or buy from someone who has a surplus of allowances. For the pilot phase, each excess tCO 2 e will cost €40. After 2007, it will be €100.

The EU system will create the largest green house emission market in the world. Approximately facilities will participate, accounting for almost half of the total carbon dioxide emissions from the European Union. Countries that seem to be the most eager with Carbon trading are UK, Denmark, Sweden, and the Netherlands. These countries represent around 25% of greenhouse emissions in Europe. Since the EU plans to cut emissions by ~ 500 million tCO 2 e per year, this means that within the countries described above there would be an annual market of: 500 million tCO 2 e X 25% X $5 -10/ tCO 2 e = $625 million to $1.125 billion dollars. Heinen, R; Johnson, E. Environmental International 30 (2004)

Norway’s allowances for the year (Center for International Climate and Environmental Research)

US Involvement In the past, the US developed a trading scheme known as the Acid Rain Program (1990) The purpose was to reduce SO 2 emissions from coal based power plants. In the late 80’s, before the Acid Rain Program, the US emitted ~16 million tonnes of SO 2. By 2000, SO 2 emissions had fallen to about 11 million tonnes. In the US SO 2 scheme trade only happened among a single sector. Hopkin, Michael. Nature (2004), 432(7015),

Conclusion Global Warming is an alarming FACT CO 2 emissions MUST be cut down Carbon trading offers a nice scheme where everybody wins The success of the ETS depends on the pressure of government AND the participation of Industry. The US MUST JOIN KYOTO AND CAP EMISSIONS!!!!!

Questions?!?!?!?!