FACTBOX: Carbon Trading Schemes Around the World
Author: Gerard Wynn, Timothy Gardner and Risa Maeda
Companies and governments are turning to emissions trading as a weapon to fight climate change in a carbon market worth $125 billion last year.
Carbon markets allow polluters to buy rights to emit greenhouse gases such as carbon dioxide and are often seen as more politically acceptable than carbon taxes.
Under cap and trade schemes, companies or countries face a carbon limit. If they exceed their limit they can buy allowances from other polluters which stay under their cap.
Alternatively, they can buy carbon offsets from projects which avoid greenhouse gas emissions outside the scheme, often in developing countries.
On Thursday, Australia's parliament rejected a plan for an emissions trade regime, prolonging financial uncertainty for major emitters. But the government renewed its pledge to push through the scheme before December.
Following is a list of established and proposed schemes:
1. Kyoto Protocol:
Mandatory for 37 developed nations, excluding the United States which never ratified the pact
Covers: all six main greenhouse gases
Target: 5 percent reduction in 1990 emissions by 2008-2012
How it works: Rich countries cut greenhouse gases at home or buy emissions rights from each other -- if one country stays within its target it can sell the difference to another emitting too much. Alternatively, they can buy carbon offsets from projects in developing countries under Kyoto's clean development mechanism.
The present round of Kyoto expires in 2012 and the world has committed to sign a new pact in December.
2. European Union Emissions Trading Scheme:
Mandatory for all 27 EU member states.
Covers: Nearly half of all EU carbon emissions
Target: 21 percent cut below 2005 levels by 2020
How it works: Member states allocate a quota of carbon emissions allowances to 11,000 industrial installations. Companies get most permits free now but many electricity generators will have to pay for all these from 2013.
Companies can buy carbon offsets from developing countries if that works out cheaper than cutting their own emissions.
3. North-eastern U.S. states' Regional Greenhouse Gas Initiative (RGGI) cap and trade scheme.
Launched: January 2009
Covers: carbon from power plants in 10 north-east states
Target: 10 percent cut below 2009 levels by 2018
4. Japan's voluntary carbon market
Launched: October 2008
Covers: carbon emissions from energy production, 2008-2012
How it works: Companies exceeding their voluntary targets can buy carbon allowances from others which stay under theirs, or from small companies to help them fund efficiency gains, or buy carbon offsets.
1. Australian Carbon Pollution Reduction Scheme
Covers: 75 percent of all Australia's greenhouse gas emissions
Target: Australia's national target is to cut greenhouse gases by 5-25 percent below 2000 levels by 2020, depending on what other countries commit to.
How it will work: Australia will auction most of its permits. The scheme plans to curb competitiveness impacts by making permits free for companies that depend on exports, and by having a carbon price cap of A$10 per tonne initially.
2. U.S. federal climate change bill
The U.S. Senate is mulling approval of a climate bill which the Democrat-controlled U.S. House of Representatives narrowly approved in June. It faces a tougher test in the Senate.
Covers: Carbon dioxide and other greenhouse gases
Target: Cut 17 percent below 2005 levels by 2020
How it would work: Industry would get most allowances for free initially. Companies could offset up to 2 billion tons of their emissions annually by paying for "green" projects. The bill would pre-empt any similar scheme from U.S. states from 2012-17 but leaves them the option to resume trade after that.
3. U.S. and Canadian Western Climate Initiative
Covers: six greenhouse gases across 11 U.S. and Canadian states, from power plants and transport
Target: 15 percent cut below 2005 levels by 2020
4. New Zealand scheme
Mandatory: To include forestry initially, and subsequently sectors including electricity, transport and agricultural waste
Target: To be announced