Tech UPTechnologyEmission rights trading, a measure to fight climate change

Emission rights trading, a measure to fight climate change

The EU emission rights trading is one of the key points of the COP25 to fight against the emission of greenhouse gases , one of those responsible for global warming. It was established in the Kyoto Protocol in 1997 and, broadly speaking, it consists in that certain companies have a maximum cap on the emission of greenhouse gases . Those that do not reach this cap can keep their excess emission rights for future needs or sell them to other companies that do not have enough because they have not been able to cut their emissions. In the end, it is about limiting the emission, whatever the agreement reached by the participating companies.

Since its inception in 2005, the companies targeted by the Community Emission Trading Scheme (ETSC) have been power plants and other combustion facilities , oil refineries, coke ovens, steel plants and gas factories. cement, glass, lime, bricks, ceramics, pulp, paper and cardboard. In 2012 the aviation sector was included. Since 2013, the scope of action has been extended to the petrochemical industry , ammonia and aluminum , as well as the N2O emissions from the production of nitric, adipic and glycocalic acid and perfluorocarbons in the aluminum sector. The capture, transport and geological storage of all greenhouse gas emissions are also covered. Participation in the ETS is mandatory for companies belonging to these fields , with some exceptions: in some sectors only factories that exceed a certain size are included and some small facilities are freed if a government establishes fiscal or other measures that make that their emissions are reduced by an equivalent amount. In addition, until December 31, 2023, the ETS will only apply to flights between airports that are within the European Economic Area.

Regarding gases, emissions of carbon dioxide (CO2), nitrous oxide (N2O) and perfluorocarbons (PFC) are considered. It covers around 45% of the EU’s greenhouse gas emissions .

The ETS operates in the 28 member states of the European Union plus Norway, Iceland and Liechtenstein, which belong to the European Economic Area but not to the EU.

The emission rights would be like the currency that would work within this system. One allowance is equivalent to one ton of CO2 or the equivalent amount of another greenhouse gas.

As we have mentioned before, companies have maximum emission rights with which they “play” in order not to go overboard. Those that pass have the option of buying emission rights from those that have not exhausted theirs and are not going to save them for the future; take steps to reduce them such as investing in more efficient technologies or using less carbon-intensive energy sources or a combination of both.

We are in phase 3 (2013-2020) in which a single emission limit is applied for the entire EU and not at the national level , auctions are carried out to assign emission rights and those that are still distributed for free are subject to certain rules, more sectors and polluting gases are considered and the NER 300 is under way, a financing program that brings together around 2 billion euros to finance innovative low-carbon technologies, renewable energy and capture and carbon storage.

The next phase will be 4, which will span from 2021 to 2030 . It will work on consolidating the emission rights trading system as an investment engine, reducing emission rights to 2.2% from the first year and strengthening the market stability reserve mechanism.

The market stability reserve was launched in January 2019 as a long-term solution to the surplus of emission rights that occurred, especially as a result of the economic crisis, as this caused emissions to be reduced more than provided. As a consequence of the surplus of emission rights, the price of carbon has fallen so there are fewer incentives to reduce emissions. Efforts will be aimed at correcting possible imbalances within this market as well as further reducing the maximum emissions ceiling that can be made per year.

In this phase, the aim is to maintain the free allocation of emission rights as a way of guaranteeing the international competitiveness of industrial sectors at risk of carbon leakage , that is, companies that transfer their production to other countries that have less strict emission limits. It is obvious what happens next: there is an increase in emissions and it is just what is not wanted.

Finally, phase 4 contemplates helping the industry and the energy sector economically in the transition towards a low-carbon (low-carbon) economy.

The most repeated limitation to the emission rights market is the one referring to double accounting , that is, that the country that sells the emission right points the reduction for selling it and the one that buys it also. In a press release last November, Greenpeace called a false hope to think that carbon trading will get us out of the climate crisis. “The climate faces a profound deficit of ambition from political decision-makers. We cannot afford carbon offsets or creative accounting or the recycling of illusory carbon credits. To have the slightest positive impact, the future carbon market will have to follow strict rules, a key test of the global community’s commitment to Paris ”, it could be read.

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