A Primer on Climate Change and Carbon Trading

Where are other carbon trading markets located?

The European Union Emissions Trading Scheme (EU ETS) is the world's largest regulatory cap-and-trade regime for the reduction of greenhouse gas emissions. Members of the European Union are each required to submit national carbon dioxide quotas, and permits (carbon credits) are issued to almost 12,000 utilities and large emitters of greenhouse gases covered by the scheme. Companies are then able to buy, sell or trade the credits as needed, provided they possess enough credits to cover their own emissions. The second phase of the plan runs from 2008-2012, and countries are now in the process of submitting their plans for that period.

The Chicago Climate Exchange (CCX) is billed as North America's first legally binding greenhouse gas trading scheme. It administers a voluntary system in which members commit to binding emissions reductions, buying and selling carbon credits in order to achieve those levels. It is supplemented by the participation of Offset projects in Brazil. The CCX has also signed an agreement with an organization in India to develop emissions reductions projects in that country. In partnership with the Montreal Exchange, CCX will help to develop the Montreal Climate Exchange, and environmental trading market for Canada.

The Regional Greenhouse Gas Initiative (RGGI) is a legally binding agreement signed by seven North-eastern US states: Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont. Beginning in 2009, a regional cap-and-trade system will limit regional emissions to current levels, approximately 121 million tons, a level that will be maintained until 2015.

The recently passed California Global Warming Solutions Act sets emissions limits for the state, with a target of reducing emissions to 1990 levels by 2020 - about a twenty-five percent reduction from business as usual. While the legislation does not require carbon trading, it uses language to encourage the development of market mechanisms, and Governor Arnold Schwarzenegger and business groups favour a cap-and-trade approach.

• Overview
• What are greenhouse gases (GHGS)?
• Who determines whether climate change is real?
• What are the likely impacts of climate change?
• What can be done about climate change?
• Who regulates climate change and carbon trading?
• What are carbon credits and how do they work?
• How do Kyoto Protocol carbon credits work?
• Where are other carbon trading markets located?
• Conclusion