The emissions trading , short emissions trading or emissions trading is an instrument of environmental policy with the aim of emissions to reduce to the lowest possible cost to the economy. In the European Union , the EU emissions trading scheme for carbon dioxide emissions was introduced into law in 2005, with the concept of emissions trading already being developed in 1968 by John Harkness Dales (1920–2007).
The basic idea for emissions trading was conceived in 1966 by Thomas Crocker, an economics graduate student at the University of Wisconsin – Milwaukee . He argued that self-organization through trade would lead to the best outcomes for all actors. JH Dales, in his book Pollution, Property and Prices, suggested establishing a pollution rights market to limit water pollution from industrial wastewater.
To do this, an upper limit for certain emissions (e.g. carbon dioxide , sulfur dioxide , nitrogen oxide ) within a specific area (regional, national, international) and a specific period (e.g. calendar year) must first be set politically. Then, according to this upper limit, so-called environmental certificates are issued, which entitle the user to emit a certain amount. Is z. If, for example, an upper limit of 100 million tonnes of carbon dioxide is set for a certain region within a year, certificates are issued that entitle the holder to emit 100 million tonnes of carbon dioxide. This upper limit can be gradually reduced in the following years. Since these certificates are freely tradable, the price for these certificates is determined by demand. Emissions that take place without emission rights are subject to a penalty. In English usage one also speaks of cap and trade .
The decisive advantage of this market-oriented solution is that not every actor has to save the same amount of pollution. Only the overall result of all actors is decisive. There is an incentive for those actors who find it particularly easy to save (who have the lowest reduction costs) to reduce their emissions the most. Or to put it another way: through trading, those actors with the lowest reduction costs can take over the emission reduction of those companies for whom the reduction would be very expensive. As a result, this means that, assuming complete competition, a desired reduction amount can be achieved cost-effectively ( economic minimum principle ). From the point of view of economic theory, emissions trading is just as cost-efficient as an environmental tax. As a rule, it is significantly more efficient than regulatory or planning instruments of environmental policy , because the state usually does not have the necessary information about avoidance costs for companies to carry out regulatory interventions at the optimum level. In the case of emissions trading, he does not need this information.
Emissions trading can increase market prices for certain products. In this way, consumers receive appropriate signals on how to use environmentally harmful products sparingly.
Classification of emissions trading in the environmental policy instruments
Market economy instruments can be divided into price and quantity solutions. The price solutions include environmental taxes (e.g. the Pigou tax or the eco tax ). Ideally, the contribution of the levy to price development is predictable in the long term for market participants. The basic problem with these instruments is that the steering effect with regard to the environmental goal is difficult to predict. Too low a tax misses the environmental target, too high leads to unnecessarily high avoidance efforts.
Emissions trading is counted among the quantity solutions because the government specifies a specific quantity for a specific emission. This eliminates the problematic determination of the level of the tax rate, and the legislature can directly influence the environmental target. One therefore speaks of a high level of ecological accuracy in emissions trading. However, it is difficult to forecast the development of prices and thus the burden on companies and consumers.
Issue of certificates
The issuance of certificates can basically be divided into two forms:
- Allocation by the government ( grandfathering ) as well
When the government allocates, it is politically determined who receives how many certificates. This form of output realizes grandfathering: companies are not exposed to a price shock by having to pay for a new production factor from one day to the next. If the number of certificates allocated is based on the level of emissions before allocation, there is no incentive for companies to reduce their emissions before allocation, on the contrary, to emit a particularly large amount. There is also a risk that politically influential interest groups will be favored. For example, within the framework of an international emissions trading scheme, which aims to distribute pollutant emissions with global effects (e.g. greenhouse gases) to the participating countries, the certificates can be allocated according to the number of inhabitants. Countries with a high consumption of fossil energy would then have to buy additional certificates from countries with low energy consumption. Economically poorly developed countries, which usually have a relatively low energy consumption, can thus generate additional income. This form of output is revenue-neutral.
If there are no objective criteria for an allocation by the government, it makes sense to auction the certificates. At the first auction, the certificates will be given to the companies that will achieve the greatest benefit. The state generates additional income with the auction and can use this to compensate for social hardship or disadvantages in international competition resulting from rising prices, for example, or to relieve the production factor labor. This enables further increases in efficiency.
Both for the "auction" and for the commercial offer as market mechanism such. B. Stock exchanges. This goes hand in hand with the fact that speculative transactions are also possible.
In the Federal Republic of Germany, the German Emissions Trading Authority is responsible for the sale and allocation of certificates.
Emissions trading for greenhouse gases
With the beginning of the first commitment period of the Kyoto Protocol , there were two major trading systems for greenhouse gases: the bilateral trade between Annex I countries agreed in the Kyoto Protocol and the EU emissions trading for companies within Europe . By 2017 there were 21 different trading systems in 35 countries. The starting point is the knowledge that many pollutants not only have a local effect, but also over a large area, so that the reduction in emissions can only be viewed and evaluated over large geographical areas. The man-made emissions of greenhouse gases , i.e. gases that contribute to further warming of the earth's atmosphere, are to be reduced worldwide. This is intended to stop global warming or slow its progress.
Carbon dioxide (CO 2 ) is the greenhouse gas with the largest emissions in terms of quantity. Some other gases are important for the greenhouse effect despite very low emissions . The design of this portion is done using the global warming potential (ger .: Global warming potential - GWP). This value indicates how large the respective contribution of a gas to the greenhouse effect is in CO 2 equivalents. Usually the global warming potential is related to 1 kg of gas and a period of 100 years. The global warming potential of, for example, 1 kg of methane corresponds to that of 25 kg of CO 2 . Nitrous oxide is 298 times and sulfur hexafluoride SF 6 even 22,800 times more harmful to the climate than CO 2 .
|Climate-relevant gases||Molecular formula||Global warming potential
Global Warming Potential)
|Share of man-
made greenhouse gas emissions
|carbon dioxide||CO 2||
|Nitrous oxide||N 2 O||
Sulfur hexafluoride ,
and the like. a.
various, CHF X Cl Y
That is why it was agreed in the Kyoto Protocol , which specifies the provisions of the United Nations Framework Convention on Climate Change , how many of these climate-affecting gases individual countries or groups of countries are allowed to emit and which reduction steps they undertake within a certain time schedule.
With the conventional instruments (in Germany the Federal Immission Control Act ), such quantitative targets could hardly be achieved, or only with great difficulty. Theoretically, the administrative authorities could grant any company a permit to emit certain quantities of climate-affecting gases on request.
In addition to the legal problems that such an approach would have, the consideration that reducing emissions of climate-affecting gases causes very different costs depending on the industry or industrial technology speaks against it. However, the companies themselves know much better who can avoid how much emissions at what cost, because they know their own technology, their own processes and their further development options.
Trading systems in practice
Current trading systems for greenhouse gases
- The Kyoto Protocol , an additional protocol adopted on December 11, 1997 to shape the United Nations Framework Convention on Climate Change (UNFCCC) with the aim of protecting the climate, contains an essential "flexible" instrument, trading in emission rights between countries.
- Within Europe , the EU emissions trading scheme introduced in 2005 was an important instrument for the European Union to achieve the climate protection goals set out in the Kyoto Protocol. It is the world's first multinational emissions trading system and was also intended as a pioneer of a possible global system.
- The emissions trading system in Switzerland set up since 2008 - - is the smallest in the world and is based on the EU emissions trading. From 2020, the Swiss emissions trading system and that of the EU will be linked.
- In 2014, the US state of California and the Canadian province of Quebec linked their emissions trading systems as part of the North American Wester Climate Initiative (WCI) . The Canadian province of Ontario was added in 2018.
- There are also several voluntary corporate or plant based trading systems in the United States and Canada . The Chicago Climate Exchange (CCX) is a voluntary trading system from the USA that has been in operation since 2003, in which 350 mostly large companies, universities and associations have committed themselves to reducing their joint greenhouse emissions by 6%. This is often reduced by large compensatory reforestation projects in the USA and Brazil . Another trading system, the Voluntary Market , becomes less important as the Mechanism for Environmentally Compatible Development (CDM) of the Kyoto Protocol grows .
- In New South Wales , a federal state of Australia, the NSW Greenhouse Gas Abatement Scheme was established in 2003 , a compulsory trading system for electricity producers and industrial companies that mainly works with reforestation projects.
- In New Zealand , a law was passed in September 2008 to introduce a trading system that is the first system in the world to cover agriculture.
- In the Japanese prefecture of Tokyo , a binding emission rights system for industry and offices has been in place since the beginning of fiscal year 2010 (April 1). The actual trading and sanctioning of excessively high emissions began in spring 2011. The introduction of a nationwide system failed in 2013.
Current trading systems for other pollution rights
- In the USA, a trading system for sulfur dioxide (SO 2 ) emissions was set up under the Acid Rain Program in the mid-1990s .
Historical trading systems
In preparation for the ETS (Emissions Trading System of the EU ), smaller trading systems were established in Great Britain and Denmark for a few years.
Future trading systems
In order to also record the emissions of private consumers, further systems are being discussed under the heading “ Personal carbon trading ”.
In a survey of American economists who worked in companies, the state, and universities around 1990, 78 percent of respondents agreed with the thesis that market-based instruments such as taxes and emissions certificates are a better approach to restricting emissions than regulatory determination Upper limits for pollutants. The fact that emissions trading is relatively easy to handle and yet efficient was rated as positive . A goal is given and not the (possibly inefficient) way to the goal is determined. In this way, technical progress is made towards the best solution.
The German Advisory Council on Environmental Issues sees emissions trading as a possible central element of a long-term climate protection strategy. The attractiveness of this idea lies in the simplicity of the system. Only a global emission reduction target will be set, the microeconomic control will be left to the market mechanism. As a result, the politically prescribed environmental target is achieved at the macroeconomic minimum costs (so-called static efficiency). In contrast to microeconomic standards, emissions trading also provides a constant incentive to reduce emissions through volume adjustments and technical progress (so-called dynamic efficiency). However, the Council of Experts criticized the concrete legal development of the emission rights allocation in the national allocation plan I .
According to the political scientist Elmar Altvater , emissions trading is a “legal construction” according to which pollution of the atmosphere is made a right ; renouncing this will result in valuation . This legal form of valuation contradicts the classical political theory , according to which work enables the acquisition of property rights.
Hans-Werner Sinn from the Ifo Institute supports the demand of many environmental economists for a worldwide trade in emission certificates for carbon dioxide. However, he points out that the introduction of such a system must take place quickly and in a globally coordinated manner and that all countries must participate. A unilateral approach with the hope of integrating all countries into the system at some point, as is currently being pursued by the EU, could produce an ever stronger comparative price reduction effect due to the reaction of the supply side as time progresses. This could even lead to an acceleration in global pollutant emissions.
Linking emissions trading systems
Different regional emissions trading schemes can be linked (English linking ) by recognizing emission credits of the other system for its reduction commitments. This linking of emissions trading systems creates a larger carbon market; overall, it can reduce costs and improve the liquidity and stability of the market. If there are existing taxes or subsidies or actors exercise market power, the effectiveness of the trading system linkage can decrease, it can even turn into the opposite under certain circumstances ( theory of the second best ).
The link also has a symbolic value, as it demonstrates a joint effort to reduce greenhouse gases. Some authors argue that linking can be the starting point for the development of a new international “bottom-up” climate policy architecture, in which different individual systems worldwide merge.
Elements of a trading system can have a “contagious” effect on others: A maximum price in one system also applies to every linked one, even if none is provided there. Price shocks in one of the markets involved also have an effect on other markets after the link. The “quality” of the emission rights can decrease. For example, after the merger of the European emissions trading system with the offset market from the Clean Development Mechanism, certificates from projects that had not resulted in additional emissions reductions came onto the market. In linking the California and Québec emissions trading systems in 2014, Québec also imported loopholes in the California system. But there is also the chance that the prospect of a link will lead to weak trading systems being improved in order to bring them into line with higher standards of a partner.
With the link, the flexibility of the partners decreases. On the one hand, this helps companies form long-term, stable expectations about future emissions reductions and prices. On the other hand, there is a risk that design errors can hardly be remedied if the partners cannot agree on a reform. Individual participants lose the opportunity to act independently, for example to allow emission rights to be postponed between trading periods in the event of economic crises.
The International Carbon Action Partnership (ICAP) connects regional, national and subnational governments and public authorities from all over the world to discuss important aspects of the design of emissions trading systems and the path to a global carbon market. 30 national and sub-national jurisdictions have joined ICAP since it was launched in 2007.
- National climate protection program
- Alpine Crossing Exchange
- in-house emissions certificate trading
- Carbon accounting
- Fee and dividend
Literature that mainly deals with EU emissions trading is listed here.
- Wolfgang Gründinger : lobbying in climate protection. The national structure of the European emissions trading system. VS Verlag, Wiesbaden 2012.
- Larry Lohmann (Ed.): Carbon Trading. A Critical Conversation on Climate Change, Privatization and Power. Published by the Dag Hammarskjöld Foundation, October 2006.
- Jens Nawrath: Emission Certificates and Financial Constitution. Duncker & Humblot, Berlin 2008, ISBN 978-3-428-12744-3 .
- Matthias Corbach: The German electricity industry and emissions trading. ibidem-Verlag, Stuttgart 2007, ISBN 978-3-89821-816-0 .
- Wolf Fichtner: Emission Rights, Energy and Production. Scarcity of environmental use and production management planning. Erich Schmidt, Berlin 2004, ISBN 3-503-08385-5 .
- Michael Lucht, Gorden Spangardt: Emissions trading. Springer, Heidelberg 2004, ISBN 3-540-21005-9 .
- Rolf Linkohr, Alexandra Kriegel, Beatrix Widmer: “Air deals” or how trading in greenhouse gases is changing energy policy. etv, Essen 2002, ISBN 3-925349-39-1 .
- Carl-Stephan Schweer, Christian von Hammerstein: Greenhouse Gas Emissions Trading Act. Cologne 2004, ISBN 3-452-25771-1 .
- Lutz Wicke: Beyond Kyoto - A New Global Climate Certificate System . Springer, Heidelberg 2005, ISBN 3-540-22482-3 .
- Ines Zenke, Thomas Fuhr: Trading with CO 2 certificates . CH Beck, Munich 2006, ISBN 3-406-55245-5 .
- Energy Institute at the Johannes Kepler University Linz (ed.): Legal Problems of the Emission Certificate Act 2006, ISBN 3-902460-27-X .
- Bernhard Kirchartz: Emissions Trading - Market Economy or Regulatory Law? In: water, air, soil. 48, 6, 2004, pp. 32-35,
- ICAP ETS Library , literature portal on the subject of emissions trading
- Information from the Federal Environment Ministry (Germany) on the state of affairs
- Federal Agency for Civic Education: Emissions Trading
- The Cornerhouse.org: Carbon Trading - a critical conversation on climate change, privatization and power , development dialogue no. 48 September 2006 (PDF 3.1 MB)
- Donald MacKenzie: The Political Economy of Carbon Trading. In: London Review of Books . 29 (7), April 5, 2007. Retrieved March 19, 2013.
- German Society for the United Nations eV: Overview of emissions trading . Retrieved September 6, 2013.
- Frank J. Convery: Origins and Development of the EU ETS . In: Environment and Resource Economics . tape 43 , 2009, doi : 10.1007 / s10640-009-9275-7 .
- Newly Released Paper Details Origins of Cap-and-Trade. ( Memento from August 12, 2014 in the web archive archive.today ) In: The Washington Independent. November 1, 2010.
- JH Dales: Pollution, property and prices: An essay in policy-making and economics . University of Toronto Press, Toronto 1968, ISBN 0-8020-1566-2 .
- Eberhard Fees: Environmental Economics and Environmental Policy . 3. Edition. Franz Vahlen, 2007, ISBN 978-3-8006-3350-0 , Chapter 6 Certificates.
- Niels Anger, Christoph Böhringer and Ulrich Oberndorfer: Public Interest vs. Interest Groups: Allowance Allocation in the EU Emissions Trading Scheme . Ed .: Center for European Economic Research. Discussion Paper No. 08-023 ( econstor.eu [PDF; 306 kB ]).
- Eberhard Fees: Environmental Economics and Environmental Policy . 3. Edition. Franz Vahlen, 2007, ISBN 978-3-8006-3350-0 , Chapter 10.3.3 Certificate solutions for reducing the greenhouse effect.
- Peter Cramton and Suzi Kerr: Tradeable Carbon Permit Auctions - How and why to auction not grandfather . In: Energy Policy . tape 30 , no. 4 , March 2002, doi : 10.1016 / S0301-4215 (01) 00100-8 .
- International Carbon Action Partnership (Ed.): Emissions Trading Worldwide: Status Report 2017 . Berlin ( icapcarbonaction.com ).
- P. Forster, V. Ramaswamy et al .: Changes in Atmospheric Constituents and in Radiative Forcing. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge / New York 2007, p. 212, (PDF)
- IPCC Fourth Assessment Report (AR4), Climate Change 2007: Synthesis Report Summary for Policymakers (page 5 of 22 of the PDF file; 2.0 MB)
- Linking the Switzerland-EU emissions trading systems: Federal Council approves amendment of the CO2 Ordinance. Federal Office for the Environment u. a., November 13, 2019, accessed on November 18, 2019 .
- The Québec-California Cabron Market and Membership of Ontario in 2018. Quebec, 2017, accessed February 19, 2018 .
- David Parker: Climate change legislation introduced. (No longer available online.) New Zealand Government, December 4, 2007, archived from the original on October 16, 2008 ; Retrieved September 10, 2008 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- David Parker: Historic climate change legislation passes. (No longer available online.) New Zealand Government, September 10, 2008, archived from the original on September 26, 2008 ; Retrieved September 10, 2008 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- Sven Rudolph, Takeshi Kawakatsu: Tokyo's greenhouse gas emissions trading scheme: A model for sustainable megacity carbon markets? In: Joint Discussion Paper Series in Economics . tape 25-2012 , 2012 ( online PDF).
- Michal Nachmany et al .: The GLOBE Climate Legislation Study - A Review of Climate Change Legislation in 66 Countries . Ed .: GLOBE International and the Grantham Research Institute, London School of Economics. 2014, Chapter 4.30, Japan ( lse.ac.uk [PDF; 6.8 MB ]).
- Richard M. Alston, JR Kearl, Michael B. Vaughn: Is There Consensus among Economists in the 1990s? In: American Economic Review. May 1992, pp. 203-209.
- Opinion of the Advisory Council for Environmental Issues on the national implementation of European emissions trading from April 2006 (PDF) ( Memento of the original from August 10, 2011 in the Internet Archive ) Info: The archive link has been inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- Elmar Altvater: The end of capitalism as we know it. Pp. 53/54.
- Hans-Werner Sinn: The Green Paradox, Ifo Working Paper No. 54 (PDF) , 2007, p. 45.
- Dallas Burtraw, Karen L. Palmer, Clayton Munnings, Paige Weber, Matt Woerman: Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets. In: SSRN Electronic Journal. 2013, doi: 10.2139 / ssrn.2249955 .
- Christian Flachsland, Robert Marschinski and Ottmar Edenhofer : To link or not to link: benefits and disadvantages of linking cap-and-trade systems . In: Climate Policy . tape 9 , 2009, doi : 10.3763 / cpol.2009.0626 .
- M. Ranson, R. Stavins: Linkage of Greenhouse Gas Emissions Trading Systems - Learning from Experience. Discussion Paper Resources For The Future, No. 42, 2013.
- The House of Commons Energy and Climate Committee: Linking emissions trading systems. London 2015.
- California Environmental Protection Agency Air Resources Board: Linkage . 2013.
- Jessica F. Green: Don't Link Carbon Markets . In: Nature . March 21, 2017, doi : 10.1038 / 543484a .
- Jessica F. Green, Thomas Sterner and Gernot Wagner : A balance of bottom-up and top-down in linking climate policies . In: Nature Climate Change . tape 4 , December 2014, doi : 10.1038 / nclimate .