ESE 'CARBON TRADING' YABA ARI IGISUBIZO KIRAMBYE KWIYANGIRIKA RY'IKIRERE?

FACULTY OF AGRICULTURE

DEPARTMENT OF AGRICULTURAL ECONOMICS AND RURAL DEVELOPMENT

COURSE: NATURAL RESOURCES ECONOMICS
LEVEL FOUR

CONTRIBUTING TEAM MEMBERS:

UMUGABE DAVID RENAUD                   

EMERA EMERANCE                                 

BIZIMUNGU ALEX                                    

INGABIRE FIDELINE                            

MUSABYIMANA JAPHET                        

MIZERO ELYSE                                         

MAY 10, 2015

CARBON TRADING AS A SOLUTION TO THE GLOBAL WARMING

0. INTRODUCTION

Carbon is an element stored in fossil fuels such as coal and oil. When these fuels are burned, carbon dioxide is released and acts as what we term a "greenhouse gas". Carbon is the common denominator in all polluting gases that cause global warming.

Carbon trading is a market mechanism intended to tackle global warming. Though it dates back to 1989 it only took off as a market after the Kyoto Protocol was signed by some 180 countries in December 1997, in Kyoto, Japan. The Protocol calls for 38 industrialized countries to reduce their greenhouse gas emissions between the years 2008 and 2012 to levels that are 5.2 percent lower than those of 1990. Under Kyoto, each participating government has its own national target for reducing carbon dioxide emissions.

1. CARBON TRADING DEFINITION

Carbon Trading is a scheme where firms (or countries) buy and sell carbon permits as part of a program to reduce carbon emissions. Usually firms are given a certain quote to pollute a certain amount. If they wish to pollute more than their allowance then they have to buy more permits.

If they pollute less than their quota they can sell their spare permits on the market. Thus there is an incentive to reduce pollution and find the most efficient way of dealing with pollution.Over time governments can reduce pollution quotas to encourage greater efficiency.

The carbon trade is legitimized by the Clean Development Mechanism (CDM) of the Kyoto Protocol, an international agreement that aims to deal with the threat of global warming. The CDM is one of the Protocol's market-based “flexible” mechanisms, which include emissions trading and joint implementation.

Examples of Carbon Trading

An early example of an emission trading system has been the SO2 trading system under the framework of the Acid Rain Program of the 1990 Clean Air Act in the U.S. Under the program, which is essentially a cap-and-trade emissions trading system, SO2 emissions were reduced by 50% from 1980 levels by 2007.

Two other examples of environmental services dealers in the carbon trade are Climate Care and Future Forests. The London-based Climate Care is a non-profit organization that sells carbon offsets to individuals and companies and uses the money to invest in climate-friendly projects, like wilderness protection in Uganda, energy efficiency in the Indian Ocean island state of Mauritius, and small-scale hydro power in Bulgaria. Its corporate clients are mostly travel agencies like Ecotours, Whale Watch Azores, Nature Trek, and Andante.

3. GLOBAL WARMING DEFINITION

Global warming is the observed and projected increases in the average temperature of Earth's atmosphere and oceans.

a) Observed temperature increases (global warming increases)

The Earth's average temperature rose about 0.6° Celsius (1.1° Fahrenheit) in the 20th century, see temperature graphs below:

Fig. 1: Definition for global warming: Temp. increase in the last 1'000 years (graph from http://www.globalwarmingart.com/images/b/bb/1000_Year_Temperature_Comparison.png).

Fig. 2: Definition for global warming: Temp. increase in the last 150 years (graph from http://www.globalwarmingart.com/wiki/Image:Instrumental_Temperature_Record_png).

Fig 3: Definition for global warming: Temp. increase in the last 25 years (graph from http://www.globalwarmingart.com/images/a/af/Short_Instrumental_Temperature_Record.png).

b) Prediction for future temperature increase (global warming predictions)

According to different assumption about the future behavior of mankind, a projection of current trends as represented by a number of different scenarios gives temperature increases of about 3° to 5° C (5° to 9° Fahrenheit) by the year 2100 or soon afterwards. A 3°C or 5° Fahrenheit rise would likely raise sea levels by about 25 meters (about 82 feet).

 Fig 4: Definition for global warming: Temp. increase until the year 2100 (graph from http://www.globalwarmingart.com/wiki/Image:Global_Warming_Predictions_png).

4. CAUSES OF GLOBAL WARMING

Most climate scientists agree the main cause of the current global warming trend is human expansion of the "greenhouse effect" — warming that results when the atmosphere traps heat radiating from Earth toward space.

A layer of greenhouse gases – primarily water vapor and including much smaller amounts of carbon dioxide, methane and nitrous oxide – act as a thermal blanket for the Earth, absorbing heat and warming the surface to a life-supporting average of 59 degrees Fahrenheit (15 degrees Celsius).Certain gases in the atmosphere block heat from escaping. Long-lived gases that remain semi-permanently in the atmosphere and do not respond physically or chemically to changes in temperature are described as "forcing" climate change. Gases, such as water vapor, which respond physically or chemically to changes in temperature are seen as "feedbacks."

Gases that contribute to the greenhouse effect include:

• Water vapor. The most abundant greenhouse gas, but importantly, it acts as a feedback to the climate. Water vapor increases as the Earth's atmosphere warms, but so does the possibility of clouds and precipitation, making these some of the most important feedback mechanisms to the greenhouse effect.

• Carbon dioxide (CO2). A minor but very important component of the atmosphere, carbon dioxide is released through natural processes such as respiration and volcano eruptions and through human activities such as deforestation, land use changes, and burning fossil fuels. Humans have increased atmospheric CO2 concentration by a third since the Industrial Revolution began. This is the most important long-lived "forcing" of climate change.

• Methane. A hydrocarbon gas produced both through natural sources and human activities, including the decomposition of wastes in landfills, agriculture, and especially rice cultivation, as well as ruminant digestion and manure management associated with domestic livestock. On a molecule-for-molecule basis, methane is a far more active greenhouse gas than carbon dioxide, but also one which is much less abundant in the atmosphere.

• Nitrous oxide. A powerful greenhouse gas produced by soil cultivation practices, especially the use of commercial and organic fertilizers, fossil fuel combustion, nitric acid production, and biomass burning.

Chlorofluorocarbons (CFCs). Synthetic compounds entirely of industrial origin used in a number of applications, but now largely regulated in production and release to the atmosphere by international agreement for their ability to contribute to destruction of the ozone layer. They are also greenhouse gases.

The role of human activity

In its recently released Fourth Assessment Report, the Intergovernmental Panel on Climate Change, a group of 1,300 independent scientific experts from countries all over the world under the auspices of the United Nations, concluded there's a more than 90 percent probability that human activities over the past 250 years have warmed our planet.

The industrial activities that our modern civilization depends upon have raised atmospheric carbon dioxide levels from 280 parts per million to 379 parts per million in the last 150 years. The panel also concluded there's a better than 90 percent probability that human-produced greenhouse gases such as carbon dioxide, methane and nitrogenous oxide have caused much of the observed increase in Earth's temperatures over the past 50 years.They said the rate of increase in global warming due to these gases is very likely to be unprecedented within the past 10,000 years or more.

The industrial activities of modern civilization release greenhouse gases into the atmosphere.

5 .THE CURRENT AND FUTURE EFFECTS OF GLOBAL WARMING

The potential future effects of global climate change include more frequent wildfires, longer periods of drought in some regions and an increase in the number, duration and intensity of tropical storms.

Global climate change has already had observable effects on the environment. Glaciers have shrunk, ice on rivers and lakes is breaking up earlier, plant and animal ranges have shifted and trees are flowering sooner.Effects that scientists had predicted in the past would result from global climate change are now occurring: loss of sea ice, accelerated sea level rise and longer, more intense heat waves.

Taken as a whole, the range of published evidence indicates that the net damage costs of climate change are likely to be significant and to increase over time.

Global climate change results in frequent wildfires, longer periods of drought in some regions and an increase in the number, duration and intensity of tropical storms.

The consequences of changing the natural atmospheric greenhouse are difficult to predict, but certain effects seem likely:

• On average, Earth will become warmer. Some regions may welcome warmer temperatures, but others may not.

• Warmer conditions will probably lead to more evaporation and precipitation overall, but individual regions will vary, some becoming wetter and others dryer.

• A stronger greenhouse effect will warm the oceans and partially melt glaciers and other ice, increasing sea level. Ocean water also will expand if it warms, contributing further to sea level rise.

• Meanwhile, some crops and other plants may respond favorably to increased atmospheric CO2, growing more vigorously and using water more efficiently. At the same time, higher temperatures and shifting climate patterns may change the areas where crops grow best and affect the makeup of natural plant communities.

- Intergovernmental Panel on Climate Change

Scientists have high confidence that global temperatures will continue to rise for decades to come, largely due to greenhouse gases produced by human activities. The Intergovernmental Panel on Climate Change (IPCC), which includes more than 1,300 scientists from the United States and other countries, forecasts a temperature rise of 2.5 to 10 degrees Fahrenheit over the next century.

According to the IPCC, the extent of climate change effects on individual regions will vary over time and with the ability of different societal and environmental systems to mitigate or adapt to change. The IPCC predicts that increases in global mean temperature of less than 1.8 to 5.4 degrees Fahrenheit (1 to 3 degrees Celsius) above 1990 levels will produce beneficial impacts in some regions and harmful ones in others. Net annual costs will increase over time as global temperatures increase.

"Taken as a whole," the IPCC states, "the range of published evidence indicates that the net damage costs of climate change are likely to be significant and to increase over time."

6.CARBON TRADING AS SOLUTION TO THE GLOBAL WARMING

6.1. BACKGROUND USE OF CARBON TRADING TO CONTROL GLOBAL WARMING

The Kyoto Protocol is the first scheme that includes global trading in greenhouse gases, but the idea of trading pollutants was first tried in the 1970s when the US decided to trade sulphur dioxide and nitrous oxide to tackle acid rain. The key idea behind carbon trading is that, from the planets point of view, where carbon dioxide comes from is far less important than total amounts. So, rather than rigidly forcing the reduction of emissions country-by-country (or company-by-company), the market creates a choice: either spend the money to cover the costs of cutting pollution (emissions), or continue polluting (emitting) and pay someone else to cut their pollution.

6.2. MECHANISM OF CARBON TRADING IN GLOBAL WARMING CONTROL

Carbon would be given an economic value, allowing people, companies or nations to trade it. If a nation bought carbon, it would be buying the rights to burn it, and a nation selling carbon would be giving up its rights to burn it. The value of the carbon would be based on the ability of the country owning the carbon to store it or to prevent it from being released into the atmosphere. A market would be created to facilitate the buying and selling of the rights to emit greenhouse gases.

The industrialized nations for which reducing emissions is a daunting task could buy the emission rights from another nation whose industries do not produce as much of these gases. The market for carbon is possible because the goal of the Kyoto Protocol is to reduce emissions as a collective responsibility.There are two main ways to exchange carbon:

v  The first is what is called a cap-and-trade scheme whereby emissions are limited and can then be traded. Under Kyoto developed countries can trade with each other. The European Trading Scheme (ETS) is a cap-and-trade scheme and the largest companies-based scheme around. There are also voluntary cap-and-trade schemes. The Chicago Climate Exchange (CCX) is such a scheme.

v  The second main way of trading carbon is through credits from projects that compensate for or "offset" emissions.

This kind of trading works like this: an eco-consultancy that brokers environmental services conducts an eco-audit of a client and comes up with a presumably accurate estimate of how much carbon the client's activities release into the atmosphere. At the other end of the operation, the firm scours the world in search of environmental services that could offset its client's emissions. These services are usually forests and tree-planting projects and are known in the business as carbon assets or carbon sinks, because trees remove carbon from the atmosphere and sequester it in their wood. The activity of these sinks is often called carbon sequestration. Using a variety of methodologies, the environmental services broker arrives at an estimate of how much carbon a particular sink sequesters, and then assigns it a monetary value and sells it to a client. The client then subtracts from its carbon account the carbon sequestered by its newly purchased carbon sink. The client is said to be carbon-neutral or climate-neutral when its carbon assets equal its carbon emissions.

The World Bank, one of the main players in carbon financing, estimates the value of carbon traded in 2005 to be about $10bn. The Bank believes the carbon market has the potential to bring more than $25bn (£14bn) in new financing for sustainable development to the poorest countries and the developing world.

While some NGOs and “green” businesses favour the carbon trade and view it as a win-win solution that reconciles environmental protection with economic prosperity, other environmentalists and grassroots organizations claim that it is no solution to environmental problems such as global warming. Critics of the idea suspect that some countries will exploit the trading system and the consequences will be negative. Many argue against the ethics and the feasibility of carbon trade mechanism: it turns the earth's carbon cycling capacity into commodity that is to be traded by the same corporate hands that are destroying the climate.

Nobel Peace Prize winner Al Gore and institutions like the World Bank and the Pew Center on Global Climate Change support carbon trading as a viable market-based solution to fight global warming whereas 'Carbon Trade Watch' argue that carbon trading actually delays the crucial process of big polluters reducing their emissions.

6.3. KEY FACT ABOUT CARBON TRADING AND ITS ROLE IN GLOBAL WARMING SOLUTIONS

·         Scientists, consumers and public policymakers are increasingly in agreement that global warming is occurring.  The International Panel on Climate Change projects average temperatures to rise 3° Celsius by 2010.

·         The goals of the Kyoto Protocol were to reduce emissions by 7% below 1990 baseline levels over the period 2008-2012.  This would require an annual reduction of 620 MMT of CO2.  Carbon that can be sequestered through farm practices like NoTill/Direct Seeding is one of the most immediate and cost effective solutions to offsetting emissions.  Implementation of these land based practices at current levels of global adoption has the potential to offset 20-25% of the targeted emissions reductions.

·         Total projected GHG offsets that can be accomplished through cropping system practices such as no-till that reduce emissions and sequester carbon are 132 MMTC/yr; expanding production and use of biofuel (50 MMTC/yr); and carbon that can be sequestered from rangeland plantings (58 MMTC/yr).

·         Revenue from carbon trading should be looked upon as both a value-added benefit to society as well as an economic incentive for farmers to practice more environmentally sustainable cropping system practices.  Historically, agriculture has experienced serious degradation of soil quality in the U. S.  Soil erosion and CO2 emissions resulting from intensive tillage have resulted in a loss of about 50% of our original native soil organic matter levels.  Reduced tillage practices have shown major potential to reverse soil quality degradation and become part of the global warming solution

·         In the top 7” of soil each one percent of organic matter = 20,000#/acre.  At 58% carbon, that means 11,600# of carbon.  Soil maintains a 10:1 ratio of carbon to nitrogen; a 100 to 1 ratio of phosphorous; plus sulfur, potassium and other micronutrients.  The replacement value of all these nutrients has to be considered in addition to environmental damage when placing a value on practices that preserve more of our soil in the field and out of the atmosphere and water.

·         The financial value of carbon lost from erosion, residue burning and other natural and man-made causes has not historically been well understood.  If we could re-build organic matter at 0.1% per year through improved based on the values of N, P, K and H20 that can be fixed in humus, the value of this increase in soil organic carbon could be as high as $110/acre.

·         One acre farmed under a No Till/Direct Seed practice can annually: (1) sequester .50-.70 tons of CO2 and (2) reduce emissions by .05 tons of CO2 through reduction in fossil fuel consumption (3-5 less gal/acre/year).

·         Carbon is becoming one of the most rapidly growing international commodities traded.  Total value of carbon traded in 2005-6 nearly equaled the total value of commodity wheat and about 40% of corn grown annually in the U. S.

·         Since carbon starting trading actively in 2005, it has traded in Kyoto compliant countries in the range of $10-30/ton of CO2 and in the U. S. (where emissions reduction is voluntary) in a range of $2-4/ton.  What value would you prefer if you were (1) an emitter needing to buy offsets vs. (2) an emissions offset provider such as a No Till farmer, forester, grazing manager... rather than carbon trading?

7. CONSTRAINTS TO CARBON TRADING

The 'carbon market' has become one of the significant features of this new policy landscape. Yet the year started with gloomy news for carbon market enthusiasts. In early January, Bloomberg New Energy Finance reported the fall in the value of carbon market by 36% in 2012 . Carbon prices are below expectations and did not boost abatement behavior, which in turn raised doubts over the assumed benefits of such schemes.

The European Commission recently announced it would delay an auction of 900 million carbon credits, previously set for next year, until 2019.

The idea was to tighten near-term supply and thus bump up the price for each credit, which permits a polluter to release one ton of carbon dioxide. Instead, the price per ton—which traded in the eight-euro ($10) range in October—dropped last month to about seven euros as traders who had been holding credits in anticipation of stronger action dumped them on the market.

That price will not motivate polluting industries to change their behavior. When MIT Technology Review profiled the ETS in 2009 (see “Carbon Trading on the Cheap”), the price was 13 euros per ton, and even at that rate economists said European industries that generate and consume fossil fuels were better off buying permits than switching to technologies that pollute less.Economists predict that only carbon prices above20 to 30 euros will provide a strong enough incentive for capital investment in low-carbon technologies.

For the credit-creating projects to be effective at reducing overall greenhouse-gas emissions, the scheme operators are supposed to approve only projects that would otherwise not have gone ahead. The auditor-general criticized the Alberta Department of Environment and Water for allowing carbon credits for emissions-reducing activities that have become common practice.

It also pointed out that there was no standardized, accurate method for measuring the emissions from oil-sands tailing ponds, which store contaminated water, clay, sand and bitumen from oil-sands processing.Many opponents of emissions trading program also argue that companies are likely to purchase carbon offsets instead of reducing emissions by adopting new technologies or changing their operating practices.

8.CONCLUSION

Many innovative policies tools have been created over the last two decades to tackle the environmental challenges of the contemporary world. Many countries have started emission trading over the last decade or are planning to do so in the near future. There is no single carbon market yet, but the schemes could potentially grow into an international scheme in the future.

Therefore, referring to the above collectively and mutual benefits of natural resources protection through the carbon trading; countries are encouraged to work hand in hand to achieve a sustainable and profitable control of global warming control.

9.REFERENCE

1. If the energy company benefits from people using more energy, there may be a conflict of interest, so different reward models need to be explored; when the energy company is a government-owned corporation, this may give more flexibility to apply a different model in order to encourage uptake.
2. See Sustainability and economic growth
3. It seems that people are however not taking them up in droves (or perhaps they're just not well known enough yet)
4. Lighting is responsible for only a very small percentage of emissions, so this measure has almost no influence whatsoever
5. Note that passive solar and good insulation makes a house more pleasant to live in.
6. Reasons for scepticism about the "painting roads white" approach: the urban heat island effect is not a significant contributor to global warming,[verification needed] so it's unlikely that enough roads could be painted white to actually make a difference. If the current practices of urban sprawl and of roads taking up 25% of urban land were changed through better planning and transport provision, and if more trees were planted to overshadow roads, that would have a lot of positive effects (including less energy use in transport and cooling of buildings), and would probably include a slight positive effect on reflectivity and thus global warming. Any sources on this?[Suggested project]
7. Bjorn LomborgW and the Copenhagen Consensus.