-US President Barack Obama, March 19, 2009

U.S. President Barack Obama’s speech shares the sentiment that many global climatologists and environmentalists agree upon. Immediate action needs to take place in order to reduce the damaging effects of global warming. The facts about global warming and its detrimental effects are irreversible. Scientists have provided greater evidence that humans are largely to blame for global warming in the last two centuries. As the world is growing and the developing world is catching up to the industrialized world, more resources and energy reserves are being tapped as demand for energy keeps rising. As people started to take notice that the world was heading to a less sustainable future, the cap and trade program came into fruition which has since produced a number of other efforts and proposals for the future. The cap and trade program laid down the framework for a more effective and efficient program, but it still remains a work in progress. The coalition of nations that produced the Kyoto Protocol among other directives has shown that nations are working together to tackle global warming. With almost all countries signed onto the UNFCCC, there is sign of unity in the commitment towards producing cleaner technologies around the world.

Some of the commitments that the U.S. government has made include putting more than $80 billion in clean energy investments that will jump-start the economy and build clean energy jobs. The budget is broken down into:
o $11 billion for a bigger, better, and smarter grid that will move renewable energy from the rural places it is produced to the cities where it is mostly used, as well as for 40 million smart meters to be deployed in American homes.
o $5 billion for low-income home weatherization projects.
o $4.5 billion to green federal buildings and cut our energy bill, saving taxpayers billions of dollars.
o $6.3 billion for state and local renewable energy and energy efficiency efforts.
o $600 million in green job training programs – $100 million to expand line worker training programs and $500 million for green workforce training.
o $2 billion in competitive grants to develop the next generation of batteries to store energy.

Other plans are:
* Increasing, for the first time in more than a decade, the fuel economy standards for Model Year 2011 for cars and trucks so they will get better mileage, saving drivers money and spurring companies to develop more innovative products.
* The President issued a memorandum to the Department of Energy to implement more aggressive efficiency standards for common household appliances, like dishwashers and refrigerators. Through this step, over the next three decades, twice the amount of energy produced by all the coal-fired power plants in America will be saved in any given year.
* Supporting the first steps of a legally-binding treaty to reduce mercury emissions worldwide.
* On Earth Day 2009, the President unveiled a program to develop the renewable energy projects on the waters of the Outer Continental Shelf that produce electricity from wind, wave, and ocean currents. These regulations will enable, for the first time ever, the nation to tap into the ocean’s vast sustainable resources to generate clean energy in an environmentally sound and safe manner.

There are several other cap and trade programs that are taking place in the U.S, a notable one took place in December 2009, a memorandum signed between Governor Arnold Schwarznegger of California and Interior Secretary Ken Salazar for streamlining siting and approval of renewable energy facilities on public lands. It was the first memorandum to be signed between state and federal government involving energy production. It aims to expedite about 30 solar, wind and geothermal projects on track to break ground by the end of 2010 and become eligible for more than $15 billion in federal stimulus funds. In addition, the California governor intends to rely one-third of the state’s energy’s needs on renewable sources by 2020. This and many other pacts formed state-wide are coming into effect in the near future.

In December 2009 at the Climate summit held in Copenhagen, Denmark, the EU has committed to investing money into cleaner energy technologies in developing countries. More than eleven and a half billion dollars was pledged for the following three years to help poor countries combat rising seas levels, deforestation, water shortages and carbon emissions. It is now expected other industrialised nations will also pledge many more billions. Also announcing the decision the British Prime Minister, Gordon Brown, said the EU would also push to reduce its emissions by 30 per cent by 2020. Meanwhile a document prepared by the summit’s chairman calls on developed countries to cut their emissions by between 25 and 45 percent from 1990 levels by 2020.

First, the methods in measuring offsets and ensuring removal of carbon dioxide emissions is not precise and there is room for abusing the system. The Kyoto Protocol established the Clean Development Mechanism (CDM) which validated and measured projects to ensure they produced authentic benefits and are genuinely “additional” activities that would not otherwise have been undertaken. Today, many developing countries that are part of the UNFCC are encouraged to build cleaner technologies and many investments from industrialized nations use them to offset their emissions. The primary concern is determining whether or not the offset is truly an “additional” activity. Some of the newer and perhaps cleaner methods of producing energy could have eventually been developed without their assistance. Some types of offsets that are also questionable and unverifiable are seen mainly in developing countries. Reforestation, which is a certified offset is of debate, since trees take decades to grow and permanence of trees is not guaranteed. Gas flaring in Nigeria from oil companies has brought devastation to local farmers and communities. Now, they are producing plants which will harness the natural gas. The oil companies will continue to pollute more, and the electrical plants win offset credits. One other example of abuse in the system occurred in China where a manufacturing company of refrigerants built HFC incinerators to produce credits. This provided the incentive to build more polluting factories, and then receive credits for eliminating their emissions afterwards. Business profit greatly, and the environment lose in each scenario.

A quote from The Financial Times discussing cap-and-trade systems argues that “Carbon markets create a muddle” and “…leave much room for unverifiable manipulation”. It depicts the unfortunate reality of cap and trade. There lacks transparency during trading and the government places a lot of dependence on each industry to produce honest results. For instance, critics argue that some groups that do not pollute sell their allowances to the highest bidder. This goes against the ultimate goal of the cap and trade system. It sets a high price for carbon, but doesn’t encourage reduction of carbon emissions. Critics argue that carbon emissions should be eliminated at the source and a sufficient reduction of allowances available in the system could also help. It has been shown in the past, such as in the EU ETS (Emissions Trading System) Phase I program, regulatory agencies ran the mistake of issuing too many emission credits, which diluted the effectiveness of regulation. The practice of ‘grandfathering’ is still present where polluters are given free allowances by governments instead of paying for them. Instead of allocating allowances, people have argued for the auctioning of allowances instead.

The accountability asked for by the government is one matter, but to invest in greener technologies is another huge demand. Heavily polluting industries are hard-pressed in this situation. They can meet certain goals short-term, but to lower their emissions drastically as expressed in the Kyoto Protocol will be a huge feat. It will be nearly impossible, since it would ask them to abandon their technology altogether.With that said, the market will choose the easiest means to save a given quantity of carbon in the short term, which will ignore the importance of sustained and sizable reductions over a longer period. A market-led approach is likely to reinforce technological lock-in. Critics of carbon trading, such as Carbon Trade Watch, argue that it places disproportionate emphasis on individual lifestyles and carbon footprints, distracting attention from the wider, systemic changes and collective political action that needs to be taken to tackle climate change.

With the cap and trade in effect in some countries, hundreds of companies will be shut down and leave thousands of people without jobs which will affect the already weak economy. The extent of the damage is still to be determined. Still, there needs to a gradual conversion to renewable and cleaner sources of energy. Sudden changes may damage the fragile economy especially those in poorer areas.

Setting a carbon tax is an alternative approach, but could perhaps also used alongside cap and trade. The issue is a carbon tax by itself cannot guarantee any particular level of emissions reductions. However, the revenue generated could go towards investing in cleaner technology and taxing will punish heavy polluters directly. One drawback is that this could hurt poorer nations, who don’t have the money to invest in cleaner sources of energy and will be unfairly penalized.

A cap-and-trade program alone is not sufficient to meet the challenge of climate change and still far from establishing a true low-carbon economy. The government must implement parallel policies such as the carbon tax to ensure development and deployment of the full range of clean technologies. These policies involve stronger energy efficiency policies and incentives for investments in low-carbon technologies.

Human activities, primarily the burning of fossil fuels (coal, oil, and natural gas), and secondarily the clearing of land, have increased the concentration of carbon dioxide, methane, and other heat-trapping (“greenhouse”) gases (carbon, methane) in the atmosphere which lead to the greenhouse effect. It starts with the 50% of sunlight that is absorbed by the Earth’s surface which radiates energy in the infrared region. Greenhouse gases in the atmosphere absorb most of the infrared radiation emitted by the surface and pass the absorbed heat to other atmospheric gases through molecular collisions. The greenhouse gases then radiate in the infrared range downward towards the earth. With increasing amount of greenhouse gases in the atmosphere, a greater warming effect caused by greenhouse gas effect leads to global warming.

Much of the carbon dioxide released is due to the burning of fossil fuels. Fossil fuels contain carbon from plants and animals that were fossilized over millions of years ago. When the fossil fuels are burned, they interact with the oxygen in the air to release carbon dioxide gas. When the carbon dioxide is released in the atmosphere it emits radiation in the thermal infrared region leading to overall rise in temperatures.

Carbon dioxide’s molecular structure allows for absorption and emission of heat. It consists of one carbon atom with an oxygen atom bonded to each side. When its atoms are bonded tightly together, the carbon dioxide molecule can absorb infrared radiation released by the Earth’s surface. The molecule starts to vibrate and eventually, the vibrating molecule will emit the radiation again, and it will likely be absorbed by yet another greenhouse gas molecule. This absorption-emission-absorption cycle serves to keep the heat near the surface, effectively insulating the surface from the cold of space.

Water vapor, methane, nitrous oxide, and a few other gases are also greenhouse gases and contribute to the warming of the earth’s atmosphere. They all are molecules composed of more than two component atoms, bound loosely enough together to be able to vibrate with the absorption of heat. The major components of the atmosphere that do not contribute to the greenhouse effect are gases such as oxygen, nitrogen, i.e two-atom molecules that are too tightly bound together to vibrate and thus they do not absorb any heat.

Some of the statistics taken from scientists who have measured the environmental impact of global warming in the past two centuries share some disturbing facts. Measurements from Antarctic ice cores show that before industrial emissions started atmospheric CO2 levels were about 280 parts per million by volume (ppmv), and stayed between 260 and 280 during the preceding ten thousand years.
Carbon dioxide concentrations in the atmosphere have gone up by approximately 35 percent since the 1900s, rising from 280 parts per million by volume to 387 parts per million in 2009. Carbon dioxide emissions are growing at an alarming rate. Recent data shows that in the 1960s, the average annual increase was only 37% of what it was in 2000 through 2007. The first 50 ppmv increase took place in about 200 years, from the start of the Industrial Revolution to around 1973; however the next 50 ppmv increase took place in about 33 years, from 1973 to 2006. These numbers predict that as the world continues to populate and thrive and there is greater demand for energy, without some form of regulation of carbon emissions.

The European Union’s Emission Trading Scheme (EU ETS) was created in 2005 and is the largest multinational greenhouse gas emissions cap and trade program. It was designed to help European nations meet their commitments to the Kyoto Protocol. This program includes 27 countries and all large industrial facilities, including those that generate electricity, refine petroleum, and produce iron, steel, cement, glass, and paper. The ETS currently covers more than 10,000 installations with a net heat excess of 20 MW in the energy and industrial sectors which are collectively responsible for close to half of the EU’s emissions of CO2 and 40% of its total greenhouse gas emissions.

The first phase of the EU ETS from 2005 to 2007 was deemed a failure and programs since then have learned from its costly mistakes. It never priced carbon fairly. Phase 2—which runs from 2008 to 2012—will redeem Phase I and hopefully help Europe fulfill its commitments. The rules for Phase 3—which extends from 2012 to 2020—were published in December 2008 targets a 20 percent reduction in emissions from 1990 levels by 2020.

Under the EU ETS, large emitters of carbon dioxide within the EU monitor and annually report their CO2 emissions, and they are obliged every year to return an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year. In order to neutralize annual irregularities in CO2-emission levels that may occur due to extreme weather events (such as harsh winters or very hot summers), emission allowances for any plant operator subject to the EU ETS are given out for a sequence of several years at once. Some emitters get the allowances for free from the EU member states’ governments, but some changes have been since then. Besides receiving this initial allocation on a plant-by-plant basis, an operator may purchase EU allowances (carbon credits) from others (emitters, traders, the government.) If an emitter has received more free allowances than it needs, it may sell their carbon credits to someone else.

In January 2008, the European Commission proposed auctioning a greater share (60+ %) of permits rather than allocating freely, and inclusion of other greenhouse gases, such as nitrous oxide and perfluorocarbons. The EU ETS has recently been extended to the airline industry as well, but these changes will not take place until 2012.

EU ETS program adopted Kyoto flexible mechanism certificates as compliance tools. The first is the Joint Implementation projects defined by Article 6 of the Kyoto Protocol, which produces Emissions Reduction Units (ERUs). The second is the Clean Development Mechanism (CDM) defined by Article 12, which produces Certified Emission Reductions (CERs). Lastly, the International Emissions Trading (IET) defined by Article 17 is another method of compliance. Each method is equivalent to the reduction of one ton of carbon dioxide. These Certified Emission Reductions (CERs) can be obtained by implementing emission reduction projects in developing nations that have ratified the Kyoto Protocol.

Under the EU ETS, the governments of the EU Member States agree on national emission caps which have to be approved by the EU commission. They are required to allocate allowances to their industrial operators, track and validate the actual emissions in accordance against the relevant assigned amount, and require the allowances to be retired after the end of each year. The operators within the ETS may reassign or trade their allowances by privately by moving allowances between operators within their company, or over the counter using a broker to privately match buyers and sellers or trading in one of Europe’s Climate Exchange for derivatives. When each change of ownership of an allowance is proposed, the national registry and the European Commission are informed in order for them to validate the transaction.

In order to make sure that real carbon trading emerges (and that CO2 emissions are reduced), EU governments must make sure that the total amount of allowances issued to installations is less than the amount that would have been emitted under normal circumstances. For each Phase, the total quantity to be allocated by each Member State is defined in the Member State National Allocation Plan (NAP) (equivalent to its UNFCCC-defined carbon account.) This method has been hugely criticized due to ‘grandfathering’ where the government gifts more allowances to heavy polluters for free. An amendment has been approved abolishing the NAP by 2013. The end result is for each Member State to meet the Kyoto target.

Europe’s cap and trade system will reduce carbon emissions and climate change when it’s implemented, though politics is holding it up.

As of 2009, the newly elected U.S. President, Barack Obama, has stated many times his support in investing in renewable sources of energy, along with reducing the harmful effects of global warming emissions at home. However, during the climate summit held in December 2009, the President has revealed that the current U.S. budget prevents the U.S. from contributing to developing nations fighting carbon emissions. Legislation to create a cap and trade program to trade carbon is stalled in the Congress.

Currently, there are several programs in the U.S. that Congress has introduced to regulate emissions other than carbon into the atmosphere:

The U.S. Environmental Protection Agency’s (EPA) Acid Rain Program (ARP) was instituted in 1990 under Title IV of the Clean Air Act (CAA) and was established by EPA in 1995. The ARP regulates the sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions which are the primary causes of acid rain. The goal was to reduce S02 emissions by 10 million tonnes from 1980 levels. In 2000, the Act also called for 2 million tonnes of NO2 emissions to be reduced which according to EPA has largely been achieved. The ARP is viewed as one of the more successful federal regulatory programs within the last 10 years with annual benefits exceeding costs by a factor of 40 to 1. EPA has used the ARP fundamental elements as a model for other cap-and-trade programs, including the NOx Budget Trading Programs (NBTP), which went into effect in 2003, and the published Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR) in 2005. CAIR will permanently cap emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) in the eastern United States, specifically 28 eastern states and the District of Columbia. CAIR will reduce SO2 emissions in these states by over 70 percent and NOx emissions by over 60 percent from 2003 levels. This will result in $85 to $100 billion in health benefits and nearly $2 billion in visibility benefits per year by 2015 and will substantially reduce premature mortality in the eastern United States.

SO2 and NOx emissions come from electric generating units that burn fossil fuels, such as coal, oil, and natural gas, and that serve a generator >25 MW. For these units, Part 75 of Volume 40 of the Code of Federal Regulations (CFR) requires continuous monitoring and reporting of SO2 mass emissions, carbon dioxide (CO2) mass emissions (Section 821 of the Clean Air Act requires CO2 emissions to be monitored and reported to EPA), NOx emission rate, and heat input. The SO2 component of the ARP is a cap and trade program, designed to reduce acid deposition by limiting SO2 emission levels in the “lower 48” states of the United States. EPA controls NOx emissions from coal- fired generating units through rate-based standards linked to boiler types and allows for companies to “average” rates for these generating units.

In October 1998, EPA added Subpart H to Part 75, which provides a blueprint for the monitoring and reporting of NOx mass emissions and heat input under a state or federal NOx emissions reduction program. Subpart H has since been adopted as the required monitoring methodology for NOx mass emissions and heat input under the NOx Budget Trading Program (NBTP). The ARP and NBTP are based on a monetary system of tradeable allowances (1 t of SO2 or NOx = 1 allowance) that requires rapid, end-of- year reconciliation of emissions and allowances. Because of this, EPA had to minimize the use of traditional enforcement procedures. (For the NBTP, which is an ozone season [May 1 through September 30] program, reconciliation is done at the end of the ozone season.) For an ARP source that fails to comply with the allowances it holds for a particular calendar year, Section 411 of the Clean Air Act provides for stringent automatic penalties. The excess emissions penalty for SO2 or NOx is $2000/t, adjusted for inflation each year, and payable without demand to the U.S. Treasury. This statutory penalty is significantly higher than the value of an allowance.

The Regional Greenhouse Gas Initiative (RGGI) is one of the U.S. cap-and-trade program that covers a single sector—electricity generation—in 10 northeastern and mid-Atlantic states. The program aims to achieve a 10 percent reduction in carbon emissions from power plants by 2018. The program’s most notable aspect is that states unanimously chose auctioning to distribute the vast majority of carbon emission allowances. Six of the ten states will auction nearly 100 percent of their allowances. The auctions of the other four states include fairly small portions of fixed-price sales or direct allocations. The program’s initial three-year compliance period begins in 2009, but the first multistate auctions occurred on September 25 and December 17, 2008. The first auction, which included allowances from only six states, raised $38.5 million, while the second raised $106.5 million. States and electric utilities will invest the vast majority of those funds from the carbon credits sale in energy efficiency and renewable technologies, with an emphasis on reducing demand for fossil fuel–based electricity and saving consumers money.

However, there is no national carbon trading scheme or cap and trade project in the United States and the political climate of the country means the chance of passage isn’t likely.

This leads to the question whether or not our preventative actions are enough to reduce the effects of global warming. Are we concerned enough as we should be? The cap and trade program is a step in the right direction towards building environmentally-conscious fuel industries. But can the cap and trade program meet its ambitious goal to reduce emissions by 80% in 2050? This site will have detailed information on cap and trade, the different programs that exist today in the U.S. and in the world and future programs that are being planned.

The site is intended to give an objective view of the impact of carbon trading from an environmental and business stand point. The science behind carbon emissions will also be explained. Also a discussion about how emissions are measured and regulated today will be here. Some of the concerns over existing carbon trading programs are also discussed such as the distribution of credits and offsets and whether or not cap and trade is promoting cleaner fuel technologies.

In short, cap and trade programs for carbon emissions is a market-based policy tool for protecting human health and the environment by controlling large amounts of emissions from a group of sources. The government initiates a cap and trade program by having Congress set a cap, or maximum limit, on all global warming emissions. The cap is intended to be lowered within a set time frame to achieve the eventual goal of lowering emissions. Sources such as electric utilities and oil refineries then receive authorizations to emit in the form of emissions allowances, with the total amount of allowances limited by the cap. These allowances are attained by initial auction or by trading from other sources in the form of carbon credits. A carbon credit is equivalent to a ton of carbon dioxide emissions or equivalent greenhouse gas. There are two distinct types of Carbon Credits: Carbon Offset Credits (COC’s) and Carbon Reduction Credits (CRC’s). Carbon Offset Credits consist of clean forms of energy production, wind, solar, hydro and biofuels. Carbon Reduction Credits consists of the collection and storage of Carbon from our atmosphere through biosequestration (reforestation, forestation), ocean and soil collection and storage efforts.

This market scheme encourages carbon-emitting industries to find cost effective ways to run their facilities. They will invest in low-carbon technologies, purchase allowances, and install pollution controls, etc. Each emission source must surrender allowances equal to its actual emissions in order to comply. Sources must also completely and accurately measure and report all emissions in a timely manner to guarantee that the overall cap is achieved.

As a summary, the cap and trade approach is best used when:

• the environmental and/or public health concern occurs over a relatively large area, or a significant number of sources are responsible for the problem. In other words, The cap should cover all major sources of emissions, either directly or indirectly. They include electric utilities, transportation, and energy-intensive industries, which together comprise some 80 percent of U.S. global warming pollution, as well as fossil fuel emissions from the agriculture, commercial and residential sectors.
• there are stringent caps set in the short-term which will build better success long-term.
• allowances are auctioned rather than given away free to emitters. An allowance auction allows the market to set the price of carbon, and it would be the most efficient and equitable way of distributing allowances. Giving away too many allowances will distort the market and profit polluters.
• the auctioned revenue is re-invested by the government in green and more energy efficient technology.
• accurate and consistent measurements of emissions, communication and accountability between scientists, policymakers, regulatory entities such as the EPA that monitor the emissions trading market. Strict monitoring and enforcement of standards for offsets will be necessary, and a trustworthy fiduciary entity must oversee the disbursement of the auction revenues from the sale of allowances.
• offsets, which are reductions of pollutants, meet rigorous standards to ensure the activities are permanently removing carbon from the atmosphere
• linking a domestic cap-and-trade regime with those in Europe and other regions that have adopted a stringent emissions cap. Doing so would require the U.S. program’s design to be compatible with these other regimes.

Under the right circumstances, cap and trade programs can be extremely effective, providing substantial emission reductions, complete accountability and unprecedented data quality and access. Existing cap and trade programs – the Acid Rain Program and the NOx Budget Program – have the force of federal and state standards behind them, including national health-based air quality standards. This ensures that local public health needs are met in conjunction with achievement of regional or national emission reductions.

A well-designed cap and trade program delivers:
• Greater environmental protection at lower cost
• Broad regional reductions, facilitating state efforts to address local impacts
• Early reductions, a result of allowance banking and market incentives
• Environmental integrity and transparent operations and results
• Fewer administrative costs to government and industry
• Efficiency and innovation incentives
• Incentives for doing better and consequences for doing worse
• Accounting for all emissions
• Partnership with existing requirements to ensure protection of the local population and environment

While there is no global or even national cap and trade program yet, the politics and science is slowly moving in that direction. Even if a program doesn’t get created, there will be some form of regulation on carbon gas in the the future.