Joint memorandum submitted by the Department
for Environment, Food and Rural Affairs, Foreign and Commonwealth
Office, Department of Trade and Industry, Department for International
Development and Department for Transport
1. The Environmental Audit Committee has
asked for evidence on the UK's objectives for 2005 and on the
feasibility of emissions trading as a framework for negotiating
a post-Kyoto agreement. This joint memorandum represents the agreed
position of Defra, the FCO, DTI, DFID, and DFT
2. The ultimate objective of the United Nations
Framework Convention on Climate Change (UNFCCC) is the ".
. .stabilisation of greenhouse gas concentrations in the atmosphere
at a level that would prevent dangerous anthropogenic interference
with the climate system." The Kyoto Protocol to the UNFCCC
provides for binding emissions targets for the industrialised
countries listed at Annex I to reduce emissions of a basket of
greenhouse gases by an average of 5.2% from 1990 levels during
the period 2008-12 (this figure assumed the involvement of both
the US and Australia). There is no agreement on subsequent commitments.
The Protocol envisages that negotiations on the post-2012 period
should start by the end of 2005.
3. The Kyoto Protocol is an important step
but there is much more that needs to be done to tackle climate
change. Building an international consensus on longer-term action
will be one of the key challenges for the UK in 2005 and beyond.
The UK therefore intends to play a leadership role on international
climate change in 2005, building on its Presidencies of the G8
and EU, in order to re-energise the debate and to stimulate further
discussion on accelerated global action to tackle climate change.
"UK International Priorities—The Energy Strategy",
published jointly by FCO, DTI and Defra in October 2004, sets
out in more detail the international energy challenge that we
face and how we propose to meet this over the next five to 10
years.
APPROACH
AND SPECIFIC
OBJECTIVES FOR
THE UK PRESIDENCIES
OF THE
G8 AND EU
4. The Prime Minister has made clear his
commitment to using the UK's Presidencies of the G8 and EU to
prioritise the issue of climate change. The political debate has
lost some of its momentum (though Russia's recent decision to
ratify the Protocol should help to re-energise the debate) and
there is a need for more constructive and innovative dialogue
to establish a way forward. The Presidencies present a significant
opportunity for the UK to show leadership by creating a fresh
dynamic for this to happen.
5. The UK has a strong domestic record in
addressing the challenge of climate change. As well as being on
track to meet its Kyoto target, the UK has set ambitious domestic
goals for reducing greenhouse gas emissions and has also established
processes for reviewing and refining our domestic climate change
programme to ensure we deliver. The review of the UK's Climate
Change Programme, assessing progress against targets in order
to establish where further action is needed to meet those targets,
commenced in September 2004 and is due to be completed by the
first half of 2005.
6. On the international front, the Prime
Minister is committed to using the Presidencies to re-invigorate
the debate on climate change and to build consensus on the scale
and urgency of the challenge that the international community
faces in addressing the issue. The Prime Minister's key objective
for the G8 in 2005 is to raise the profile of climate change as
a matter deserving the urgent attention of Heads of State in the
G8 and outside it, so as to promote an international consensus
on the need for further action to control emissions.
Our aims for next year are:
— To use the Presidency of the G8 to
build on a solid foundation on the science to promote greater
understanding of the size and scope of the problem of climate
change and how to address it in the medium to long term
— To use the Presidency of the G8 to
reach agreement on a process to speed up the science, technology,
and other measures necessary to meet the threat.
— To use the Presidency of the G8 to
engage countries outside the G8 who have growing energy needs,
both on how these needs can be met sustainably and how they can
adapt to the impacts which are already inevitable.
— To use the Presidency of the EU in
2005 to continue the development of an EU medium and long term
strategy for tackling climate change. This will help to prepare
for the November 2005 Conference of the Parties (which is most
likely to be held along with the first Meeting of the Parties
to the Kyoto Protocol), where we expect to see the beginning of
discussions on global action to fight climate change after 2012.
— To use the Presidency of the EU to
highlight the contribution the aviation industry makes to greenhouse
gas emissions and make significant progress on advancing our Air
Transport White Paper commitment to including aviation emissions
into the EU Emissions Trading Scheme, and look to get negotiations
for an EU directive started with the publication by the Commission
of a Draft Proposal.
7. We will take forward this agenda through
a series of events in 2005, including an international meeting
of scientists at the Hadley Centre in Exeter on 1-3 February 2005
and a meeting of Energy Research Institutions, probably in May
2005. The aim of the science meeting is to advance scientific
understanding of and encourage an international scientific debate
on the impacts of climate change for different levels of greenhouse
gas stabilisation, and the pathways and options to achieve such
levels; and to encourage research on these issues. The meeting
will take as read the conclusions of the 3rd assessment report
(TAR) of the Intergovernmental Panel on Climate Change (IPCC)
that climate change due to human actions is already happening
and that without actions to reduce emissions, climate change will
continue to grow with increasingly adverse effects on the environment
and human society. The details of the conference can be found
at www.stabilisation2005.com. The meeting of Energy Research Institutions
follows up the "Action Plan on Science and Technology for
Sustainable Development" that was adopted in Evian during
the French Presidency of the G8 in 2003. It will explore what
current research on cleaner energy technologies is being done,
where there are synergies and duplication and where greater collaboration
could be beneficial. In addition to this meeting, the UK will
be seeking to look at ways to promote the uptake of cleaner technologies
and spur innovation into new ones as a key aspect of tackling
climate change.
8. Defra and DFID have also commissioned
a study to look at Africa and climate change to review what information
is available on climate change in Africa and evaluate the adequacy
of existing data to inform policy decisions. The study can add
considerable value by identifying these knowledge gaps and what
needs to be done to plug them. We have begun with Africa as it
is the least well-covered region, but similar work in other regions
may also be necessary.
CONTRIBUTION OF
INDIVIDUAL DEPARTMENTS
AND MECHANISMS
FOR JOINT
WORKING
9. The Ad Hoc Ministerial Group on International
Climate Change, attended by ministers from Defra, FCO, DTI, HMT,
ODPM, DfID, MoD and DfT, is chaired jointly by the Secretaries
of State for Environment Food and Rural Affairs and for Foreign
and Commonwealth Affairs. The Sustainable Energy Policy Network,
jointly chaired by Defra and DTI Secretaries of State, is responsible
for ensuring that the climate change and other commitments set
out in the Energy White Paper are implemented.
10. Within Whitehall, Defra has overall
responsibility for climate change policy including tackling the
causes of climate change, working to find ways to adapt to unavoidable
climate change impacts, promoting effective science to inform
policy, leading on international climate change negotiations,
promoting energy efficiency, reducing emissions from industry
and business, developing alternatives to fossil fuels and encouraging
the protection and enhancement of carbon sinks. The Department's
Climate, Energy and Environmental Risk Director also acts as the
Prime Minister's Special Representative on Climate Change, meeting
regularly with the UK Sherpa in preparation for the UK's G8 Presidency
and with officials and ministers from other governments. A unit
has been set up within Defra to drive forward the work on the
climate change priority for the Presidency year and includes external
experts (eg from industry and shortly an NGO and Non-Annex I country)
as well as Defra staff and secondees from other government departments.
11. The Cabinet Office and No 10 contribute
to policy development and provide co-ordination mechanisms at
senior official level, while the FCO has established a working
level G8 co-ordination team that covers all aspects of the G8
Presidency, including climate change. This team facilitates cross
Whitehall working on the UK's G8 objectives. In addition, informal
working groups on particular aspects of the Presidency communicate
regularly to ensure that all departments have an opportunity to
input into the policy making process.
12. The FCO's specific role in terms of
the Presidencies is to ensure that policy across Government is
consistent and cohesive. For the G8 Presidency, this involves
working closely with key lead Departments such as Defra, DTI and
DfT. As the Summit will be held at Gleneagles, the FCO is also
working with the Scottish Executive. The FCO is also working with
Defra to make the G8 Presidency as sustainable as possible. On
the EU Presidency, the FCO's role is to co-ordinate HMG's wider
international priorities across the full range of external activity
in which the EU is involved. The FCO is responsible for a number
of cross-cutting areas of EU and G8 Presidencies activity, including
the scheduling of Summits, Councils and other meetings and events;
aspects of the external communication of the Presidencies (including
the Presidencies logos and websites); and for attracting commercial
sponsorship for the Presidencies.
13. Overall, FCO contributes foreign policy
perspectives and analysis to help Whitehall departments form policy
on international climate change issues and negotiate effectively.
FCO staff in overseas diplomatic posts maintain regular contacts
with host governments in order to analyse and report on countries'
climate change policies and priorities, and lobby for UK positions.
FCO officials take part in the Defra-led delegation to international
climate change meetings. FCO is able to put international climate
change policies into the context of the UK's wider foreign policy
work, to maximise leverage and coherence. Diplomatic posts also
help to promote UK climate change objectives overseas by sharing
UK views and experience on successful and cost-effective action
to tackle climate change.
14. DFID is taking the lead on ensuring
effective linkages between HMG objectives on climate change and
the development agenda. Integrating management of climate change
into development and poverty reduction strategies (so-called "mainstreaming")
is key. To this end, DFID have produced multi-donor key sheets,
initiated a study on the links between climate change and disaster
prevention, and plan to start work in 2005 on climate change risk
assessment and management as part of a multilateral effort.
15. DTI's role is to consider all aspects
of climate change that impact on the energy and business sectors.
This includes making sure that that the competitiveness of industry
is maintained and ensuring that issues affecting security of energy
supply, energy prices and competitive energy markets are taken
into account. The DTI has strong energy relations with all G8
partners through its work in the International Energy Agency,
the EU (in particular through the EU-Russia Energy Dialogue) and
in its bilateral energy dialogue with the US. It is using these
relationships to promote the PM's G8 priorities (Africa as well
as climate change) and is working with DEFRA, DFID, Treasury and
others to propose initiatives that have substantial and practical
outcomes. Given our close relationship with Russia on energy the
DTI has a particular role in developing ideas to ensure synergies
with Russia priorities for its G8 presidency in 2006. The DTI
has responsibility for the energy and carbon dioxide projections
that form an integral part of the UK's National Allocation Plan
under the EU ETS, as well as promoting the uptake of low carbon
energy technologies, including renewables, carbon capture and
storage and clean coal technology. It also assists business on
opportunities arising from emissions trading through UK Trade
and Investment and the joint DTI/Defra Climate Change Projects
Office.
What alternative approaches to succeed the current
Kyoto Protocol are under consideration or may emerge and the extent
of political support each attracts
16. The UK is committed to finding a workable
framework under which global greenhouse gas emissions can be reduced
to safe levels, but the international debate as to what that framework
would look like is still at a very early stage. There are not
yet any formal intergovernmental discussions of the design of
a future commitment period to follow the Kyoto Protocol. Nevertheless,
experts have been considering what different approaches might
look like and a number of approaches have been suggested for the
design of future action on climate change. The UK sponsors joint
research on the Brazilian proposal on allocating emissions according
to historical responsibility and participates in events such as
the Future Action Dialogue organised by the Centre for Clean Air
Policy.
There are a number of broad categories of approaches:
(i) "Kyoto plus" approaches
These would build on the basic architecture of
the Kyoto Protocol to negotiate a further series of steps towards
achieving the ultimate objective of the UNFCCC. They could offer
greater flexibility in a number of areas, for example in the type
of targets (absolute/relative/binding etc) and in the allocation
of responsibilities of parties based on greater differentiation
according to countries different economic circumstances, capabilities
and other considerations.
(ii) Full term frameworks
These frameworks would start by identifying an
overarching level at which global greenhouse gas concentrations
should be stabilised in the long-term and would allocate responsibility
to countries for reducing their emissions in a manner that would
be consistent with meeting the target on the basis of agreed criteria
(for example per capita emissions, historical responsibility and/or
the capacity to act). Contraction and Convergence, based on moving
progressively to equal per-capita emissions allowances, is one
example of such a framework.
(iii) Sectoral approaches
Sectoral approaches would look for action at
a global level in specific sectors such as energy intensive industries.
This could take the form of voluntary agreements at an industry
level or a new mechanism to promote emissions reductions in developing
countries on a sectoral rather than a project basis. The details
of how to operationalise such approaches are being explored in
informal discussion fora along with the other types of approaches.
(iv) Policies and measures
This type of approach would build on national
policy commitments to reduce greenhouse gas emissions and might
include international elements to oversee implementation such
as structured peer review. It could be accompanied by international
commitments for example on funding or on technology development
and diffusion, but would not necessarily provide a basis for international
emissions trading other than through linked national schemes.
17. As yet, there have been no formal intergovernmental
discussions of the design of a future commitment period under
the Kyoto Protocol. However, now that Russia has signed up, the
Kyoto Protocol will enter into force early in 2005, triggering
the start of discussions under the UN umbrella of climate change
action after 2012. The UK will chair the EU at the UN climate
change conference at the end of 2005 at which these discussions
are due to commence. Our Presidency of the EU gives us an excellent
opportunity to galvanise work on preparing for future action.
At this stage it is important that we remain flexible in looking
at the options.
Emissions trading
18. Emissions trading is an economic instrument
that can reduce the cost of meeting a target for emissions reductions.
Emissions of greenhouse gases mix rapidly in the atmosphere, so
from an environmental point of view, it is immaterial where in
the world an emission occurs, so it makes sense to reduce emissions
where the cost is lowest. Economic modelling shows that the cost
of meeting any target for reducing greenhouse gas emissions is
reduced significantly the larger the trading market. In other
words, costs fall when moving from a national to a regional scheme
and fall further moving from a regional to an international scheme.
For this reason, international emissions trading and two related
project based instruments, the Clean Development Mechanism and
Joint Implementation, are an important part of the Kyoto Protocol.
19. The UK has gained experience of emissions
trading through the UK Emissions Trading Scheme, a voluntary,
incentivised scheme that has been operating in the UK since April
2002. The scheme was the first economy-wide emissions trading
scheme in the world and is a cap and trade scheme with 31 Direct
Participants drawn from a range of sectors, both public and private,
and a further 6,000 potential participants who can meet their
Climate Change Agreement targets through trading in the UK Scheme.
The Scheme covers the basket of six greenhouse gases traded in
tonnes of CO2 equivalent (tCO2e) and has provided first hand knowledge
and experience of the difficulties and advantages of trading emissions
across sectors. The UK has been able to deploy this experience
effectively in the development of the EU Emissions Trading Scheme
(EU ETS) and has been able to share its experiences with countries
outside the EU to good effect. The Emissions Trading Scheme has
achieved significant emissions reductions of around 9.8 million
tCO2e in its first two years and has been recognised by a National
Audit Office Report as a "pioneering initiative". The
Report found that the Department had "successfully set up
a novel and functioning emissions trading scheme" that has
provided greater understanding of emissions trading, "has
encouraged the development of the European Scheme and influenced
its design in some aspects".
20. Phase 1 of the EU ETS will begin 1 January
2005 (more details are provided below). Neither the UK nor EU
schemes currently cover aviation emissions but the Future of
Air Transport White Paper (Cm 6046-December 2003) committed
the Government to incorporating intra-EU air services in the second
phase of the EU ETS from 2008 or as soon as possible thereafter.
DfT and Defra are working closely to deliver this commitment.
Emissions trading is also recognised by the International Civil
Aviation Organisation (ICAO) as a potentially cost effective measure
to address aviation's climate change impacts, and a major research
project for ICAO has been completed recently—Designing
a Greenhouse Gas Emissions Trading System for International Aviation—ICF
Consulting, May 2004. The Government hopes that early moves in
Europe on aviation and emissions trading will provide the platform
for subsequent action at the global level. On 9 November, the
European Commission let a contract to the consultancy firm CE
Delft that will examine in detail how to achieve aviation participation
in the EU ETS. This is a welcome development.
21. DfT's response (of September 2004) to
the EAC Report Aviation: Sustainability and the Government
Response—7th Report of Session 2003-04 (HC 623) laid
out proposals on aviation emissions trading in its response to
recommendation 7.
Feasibility of an international ETS
22. International Emissions Trading is already
part of the UN architecture for tackling climate change. The Kyoto
Protocol establishes a scheme for international GHG emissions
trading between Annex I Parties (and entities authorised by Annex
I Parties) from 2008 and preparations for making this a reality
are well underway. For example, Defra has developed a Registry
which is compatible with the EU ETS and emissions trading under
the Kyoto Protocol. Defra is licensing the registry software to
other countries and there are currently eight licensees of the
Defra EU/UN Registry. In addition, under the "prompt start"
agreed for the Clean Development Mechanism (CDM), the CDM Executive
Board was elected in 2001 and is expected to register the first
CDM projects in the near future. CDM projects that meet the rules
can be awarded credits for emissions reductions dating back to
the year 2000.
23. Moreover, prior to the establishment
of international emissions trading under the Protocol, from early
next year the EU ETS will provide for international emissions
trading between participants throughout the EU. The EU scheme
is the first corporate level international CO2 emissions trading
scheme in the world. The scheme can be considered a system of
25 linked domestic trading schemes drawn up by Member States in
accordance with their obligations under the Emissions Trading
Directive (Directive 2003/87/EC). The EU ETS has been designed
so that it will in time become international emissions trading
as envisaged under the Kyoto Protocol in particular for industry
sectors.
24. The EU ETS operates by requiring each
Member State to set a total number of allowances to be allocated
to the covered industry sectors in that country and then distribute
that total through the allocation of allowances: In the first
phase from 2005 to 2007, companies are allocated EU allowances
created solely for the purpose of the scheme; from 2008, Kyoto
Units (assigned amount units or AAU) will be allocated to companies
within the EU[1].
The first phase of the EU ETS covers about 45% of EU CO2 and approximately
12,000 installations.
25. The EU ETS Directive also mandates linking
the EU ETS to third countries with emissions targets under the
Kyoto Protocol providing for the mutual recognition of allowances
between the EU ETS and other greenhouse Gas trading schemes. Thus,
the Directive envisages a network of linked company-level trading
schemes between parties to the Kyoto Protocol. From 2008 (when
Kyoto comes into effect), the mutual recognition of allowances
from third countries will require the exchange of AAU in parallel
with exchange of allowances to ensure continuing equivalence between
the EU Scheme and Kyoto Schemes. The European Commission has already
held discussions with Japan and Canada about the possibility of
establishing links between domestic schemes and the EU ETS and
at Environment Council in October announced that the EU ETS is
considering a proposal to link to domestic trading schemes in
Norway.
26. Although linking with Schemes operated
by countries or sub-national entities that are not parties to
the Kyoto Protocol is excluded from these mutual recognition provisions,
the "Linking Directive" (Directive 2004/xx/EC) which
amends the Emissions Trading Directive provides that the Commission
should explore further the possibility of linking the EU ETS to
non-Kyoto schemes within third Countries once the Protocol has
entered into force.
27. In considering whether to establish
links between domestic schemes and the EU ETS, the Community will
need to consider the impact of linking in relation to a number
of factors: institutional compatibility, economic efficiency,
environmental integrity and equity (competitiveness). These impacts
will be dependent on different aspects of the design of the scheme
in question: differences in sectoral coverage and stringency of
targets will not necessarily be a barrier to linking but minimum
levels of compatibility will be required (eg systems for tracking
trades, comparable levels of penalties and enforcement).
28. Though mutual recognition between Kyoto
and Non-Kyoto Schemes is legally barred at present, a more limited
unilateral linking remains possible where other schemes recognise
the use of EU allowances or Kyoto units for compliance with domestic
schemes. In this case there is no mutual recognition of allowances
and no actions by the EU are required. Such a link would be possible
between the EU ETS and regional emissions trading schemes of the
kind under development for the power sector in the 10 north-eastern
US states that are working together on the Regional Greenhouse
Gas Initiative.
29. In addition, the Linking Directive provides
for the use of project related emissions reduction credits (ERUS
and CERs) from the Kyoto project-based Mechanisms by installations
for compliance with the EU Trading Scheme. Joint Implementation
(JI) Projects between Annex I Parties countries will generate
Emissions Reduction Units (ERUs) from 2008 and Clean Development
Mechanism (CDM) Projects will give rise to Certified Emissions
Reductions (CERs) probably from early 2005. Thus, a link is already
in place between the EU ETS and credits arising from international
projects in non-EU developed countries and developing countries
which are party to the Kyoto Protocol.
30. As can be seen from the above, the EU
ETS and the Kyoto mechanisms already provide for a system of limited
international emissions trading between regulated entities, which
can be expanded through the linking to additional domestic trading
regimes.
31. It is possible to imagine other routes
for the further development of international emissions trading:
Either within the global framework under the
Kyoto Protocol, in which national targets and the rules for trading
have been negotiated under the UNFCCC.
Or through another international framework. For
example the EU scheme can be viewed as establishing a top down
framework for emissions trading at a EU level, albeit linked to
the CDM from 2005, and broader international emissions trading
from 2008.
Through a bilateral linking of national and regional
initiatives. This approach is reflected in the EU Directive in
that it provides for mutual recognition of allowances by agreement
between the EU and those that have ratified the protocol.
Through a more coordinated linking within the
framework of a regional economic integration organisation (the
EU) or another international organisation. For example because
the EU Scheme maintains significant national discretion over allocation
plans etc it can (as well as being an example of a top down approach
above) be conceived as the simultaneous and coordinated linking
of 25 national schemes within the framework of EU legislation.
The elaboration of an international sector based trading scheme
for aviation or shipping, in the context of ICAO, or International
Maritime Organisation, might also be considered examples of this
coordinated approach.
Through unilateral recognition of credits for
compliance with particular schemes.
Compliance and enforcement issues
32. In general terms, international law
is dependant on the will of states and implementation at national
level to ensure enforcement. Nevertheless Parties to the Kyoto
Protocol have agreed a compliance decision at the Seventh Conference
of the Parties to the UNFCCC in Marrakech in 2001 that provides
detailed procedures and penalties for non-compliance with trading
rules. The primary sanction for non-compliance with many Kyoto
rules is the suspension of eligibility to participate in trading.
The ultimate penalty for non-compliance with targets is provision
of penalties for non-compliance with targets.
33. The European Union provides an additional
compliance framework for Kyoto obligations through the implementation
of UN obligations as EU obligations making them enforceable in
the European Court. The Ratification Decision, the Monitoring
Mechanism Decision, the EU Registry Regulation in particular incorporate
UN obligations into EU law. Pursuant to these decisions the establishment
of assigned amounts, establishment of national inventory systems,
annual reporting on assigned amounts and emissions, and the establishment
of national registries are all EU obligations.
34. At the level of individual trading entities,
additional implementation measures are required to determine the
scope of coverage and the level of targets, to ensure equivalent
monitoring verification and compliance and enforcement measures,
and to ensure accounting of entity level targets and trades in
national registries. Within the EU, the EU ETS and implementing
measures already provide for obligations and sanctions for individual
participants. Monitoring and Reporting Guidance and the EU ETS
Registry Regulation provide a certain level of harmonisation of
accounting for entity level emissions and allowances. The EU ETS
also provides for harmonised penalties (
40/tonne for 2005-07 and
100/tonne thereafter).
35. Outside the EU Scheme differential treatment
of trading entities under national law, as well as differences
in coverage of schemes and level of target can cause competitive
distortions. As mentioned above, these issues would need to be
considered prior to the establishment of any formal linkage between
the EU ETS and other domestic schemes, although they could be
addressed in the mutual recognition agreement itself.
Alternatives to international emissions trading
36. The main alternatives to international
emissions trading include:
(ii) harmonised national or sectoral policies
and measures.
An international carbon tax, if set at an appropriate
level, might well have a similar effect to a perfect emissions
trading system. However, where regulators lack perfect information
about abatement costs for the regulated industry, it is often
not possible to calculate the appropriate level of tax that would
lead to the desired level of abatement. In these circumstances,
a taxation system can mainly provide for a certain control on
costs, but not a certain control on quantity of emissions abated.
For climate change mitigation policies, there is uncertainty about
abatement costs in the part of the regulators and the policies
tend to focus on quantity abated—making carbon taxes a sub-optimum
policy response in most cases. In addition, it is unacceptable
to many countries on the grounds that taxation is a matter for
national policy-making.
37. Harmonised policies and measures can
take a wide range of forms. They might include minimum efficiency
standards for electrical appliances or motor vehicles, commitments
to standards in government procurement or public buildings, or
commitments to derive a certain proportion of electricity from
renewable sources. As before, due to imperfect information about
abatement costs available to governments, these quantity based
controls are often set without specific reference to costs leading
to higher over-all abatement costs. From a purely economic perspective,
an emissions trading scheme can control the quantity abated at
minimum cost and therefore is more efficient than either a tax
or a quantity based instrument. There are also problems with the
negotiability of some such measures, but in some areas they have
an important role to play. The voluntary EU agreement with EU,
Japanese and Korean car manufacturers on automotive energy efficiency
is an example of this approach in practice. In particular, a worldwide
commitment to standards in one sector might help to alleviate
concerns about competitiveness in highly traded sectors.
Relative effectiveness of international Emissions
Trading Scheme and alternative measures in reducing emissions
and assisting technology transfer to developing countries
38. Both emissions trading and policies
and measures have a role to play in maximising emissions reductions
worldwide. An international Emissions Trading Scheme has the potential
to deliver reductions at the lowest possible cost. This should
help to ensure that more stringent targets for emissions reductions
are politically and economically feasible. But in other sectors,
international emissions trading is less relevant—for example
it is more difficult to use such a scheme to influence household
decisions on energy use, so that policies and measures clearly
have an important role to play.
39. Emissions trading can play a role in
helping to channel investment in low carbon technologies to the
developing world. This is the rationale for the Clean Development
Mechanism, which allows parties to the Kyoto Protocol with binding
targets for emissions reductions to meet part of their obligations
through emissions reductions in developing countries.
40. Emissions trading might play a greater
role in facilitating technology transfer to developing countries
if those countries were to take on some form of targets in order
to enable them to trade surplus emissions reductions. This might
have most impact if the targets were negotiated at or below the
projected growth in actual energy use. The country would then
have an incentive to proactively seek out and disseminate lower
carbon technologies to reduce emissions wherever it was affordable
to do so, in order to generate credits to sell into the international
market.
41. Policies and measures can also play
a role in spreading low carbon technologies to developing countries
through the private sector for example by creating demand for
more energy efficient products and stimulating investment in manufacturing
facilities for those products in developing countries. There is
also considerable debate about the role of the public sector in
facilitating technology transfer, for example through subsidies
and bilateral co-operation agreements. It is unlikely that these
measures could deliver emissions reductions on a scale equal to
those that might be achieved through a global commitment to an
international emissions trading system.
25 November 2005
1 The EU Registry Regulation provides for the link
between EU and Kyoto Trading via the Conversion of Kyoto AAU to
EU Allowances prior to allocation to Companies from 2008. Back
| 
