Kyoto --- Whoa!

The Kyoto Protocol, as I am sure many of you know, is a multi-national effort in an attempt to curb greenhouse gas emissions. The Protocol calls for a reduction of 6% emissions from levels present in 1990. Many nations have joined in, with 34 now participating. The target date for the emissions levels is 2012, but the European Union has just announced that it expects to achieve a level of 9.3% below 1990’s levels by 2010.

How has the European Union progressed so quickly? The answer lies in an efficient system of tradable discharge permits.

Under the scheme, which limits emissions from about 11,500 manufacturing plants and power stations, European governments issue carbon dioxide allowances, which are sold into the market by firms emitting below their limits then traded.
A program called the clean development mechanism allows companies to also invest in environmentally friendly projects in developing countries to earn credits at home.

Effectively, the tradable permits have made a market for carbon and stuck a price tag on it. With the advent of the permit system, the number of carbon allowances is limited, thereby cutting back supply and raising the market price of carbon. Now, when companies are facing choices, the price of carbon is becoming a major factor. With the price of the permits tripling since January, companies in the EU have had a huge incentive to cut back on emissions, either by a reduction in output or by an investment in cleaner technology.

Given the results, do you see the tradable discharge permit system as applicable to every nation?