Emissions trading

Although it is at the heart of international policies to combat climate change, trading does not itself reduce emissions. It does, however, enable those reductions to be achieved in the most cost-effective fashion. In simple terms, each major emitter of carbon dioxide is set an emissions target and is granted matching annual allowances by its national Government measured in tonnes.  At the end of each year, the emitter must hand in sufficient allowances to cover its actual emissions. In Europe, if the emitter fails to meet its target, it must pay a penalty of €40 per excess tonne (rising to €100 per tonne from 2008), in addition to being required to make up the shortfall.

If an emitter faces a shortfall they can purchase additional allowances from those that have excess allowances. This allows businesses to more progressively financially manage their emissions by a combination of tangible emission reduction and the purchase of extra allowances. This also means that those that do reduce their emissions below their own target are rewarded by a financial incentive (i.e. can sell their unused allowances to another business). It sounds complicated, but it's extremely clever and is having a very positive impact. Despite the scheme being relatively new, millions of tonnes of carbon dioxide are already being traded within Europe every working day. While the pilot phase of the programme saw European Governments issue too many allowances, what will make this effective over the longer haul is that over time, the EU is reducing the number of allowances in circulation and hence making the targets for emitters more challenging. This increases the financial incentive for all emitters to make change. You can help accelerate this process by becoming a Carbon Offset Partner.