Global Warming and Global Warming and Carbon TradingCarbon Trading

A brief morning seminar A brief morning seminar by:by:

Diego VillarrealDiego Villarreal

Brief OutlineBrief Outline

Global Warming and the Greenhouse Global Warming and the Greenhouse effecteffect

Greenhouse gases and Greenhouse Greenhouse gases and Greenhouse potentialspotentials

Brief description of the Kyoto Brief description of the Kyoto protocolprotocol

Carbon TradingCarbon Trading Impacts of this system on COImpacts of this system on CO22

emissionsemissions

Contrary to what is said in the popular media, our planet is Contrary to what is said in the popular media, our planet is warming up, and is likely to continue warming up in the next warming up, and is likely to continue warming up in the next century. Therefore, Global Warming is a reality!!!!. century. Therefore, Global Warming is a reality!!!!.

Climate change is affected by a variety of factors such as solar Climate change is affected by a variety of factors such as solar radiation variations and the concentration of gases in the radiation variations and the concentration of gases in the atmosphere. atmosphere.

On average, Earth receives around 1.8x10^17 W of solar On average, Earth receives around 1.8x10^17 W of solar radiation over its entire surface area. radiation over its entire surface area.

Earth is a blackbody. Earth is a blackbody.

Incoming energy is re-emitted back to space through reflection Incoming energy is re-emitted back to space through reflection and Blackbody radiation. and Blackbody radiation.

Re-emitted radiation is described by the equation belowRe-emitted radiation is described by the equation below

T

KnmE **1089.2max

Greenhouse gases are gases that have the ability to absorb the long Greenhouse gases are gases that have the ability to absorb the long wavelength radiation emitted by the surface of the earth. Some of these wavelength radiation emitted by the surface of the earth. Some of these gases are COgases are CO22, CH, CH44, N, N22O and SFO and SF66. .

In 1996, the Intergovernmental Panel on Climate Change (IPCC) concluded In 1996, the Intergovernmental Panel on Climate Change (IPCC) concluded that “Human activities are changing the atmospheric concentrations and that “Human activities are changing the atmospheric concentrations and distributions of greenhouse gases and aerosols. These changes can distributions of greenhouse gases and aerosols. These changes can produce a radiative forcing by changing either the reflection or the produce a radiative forcing by changing either the reflection or the absorption of solar radiation, or the emission and absorption of terrestrial absorption of solar radiation, or the emission and absorption of terrestrial radiation”radiation”

Inventory of U.S Greenhouse Emissions and Sinks: 1990-2000. Office of Atmospheric Programs. US Environmental Protection AgencyApril 2002

The conclusions of the IPCC are not based on speculations, but on scientific The conclusions of the IPCC are not based on speculations, but on scientific data collected over a long period of time. data collected over a long period of time.

As seen above, the concentration of COAs seen above, the concentration of CO22 has increased dramatically since has increased dramatically since the industrial revolution, causing positive radiative forcing.the industrial revolution, causing positive radiative forcing.

Radiative forcing is defined as “The Change in the net radiation at the top Radiative forcing is defined as “The Change in the net radiation at the top of the troposphere occurring because of a change in concentration of of the troposphere occurring because of a change in concentration of atmospheric components or solar insolation”.atmospheric components or solar insolation”.

Tomkiewicz, M.C.R. Chimie 9 (2006) 172-179.

Positive Radiative Forcing implies an adjustment of the overall energy Positive Radiative Forcing implies an adjustment of the overall energy balance of the planet through an increase in average global temperatures. balance of the planet through an increase in average global temperatures.

Various computer models written by the IPCC predict an average global Various computer models written by the IPCC predict an average global temperature rise of ~ 2.4 temperature rise of ~ 2.4 ooC as a result of doubling the COC as a result of doubling the CO22 concentrations concentrations in the atmosphere. in the atmosphere.

The IPCC also noted that the current concentrations of COThe IPCC also noted that the current concentrations of CO22 have not been have not been exceeded in the past 420,000 years, making the increase of COexceeded in the past 420,000 years, making the increase of CO22 in the in the atmosphere an unprecedented event. atmosphere an unprecedented event.

The emissions simulations were done at the Max Plank Institute for The emissions simulations were done at the Max Plank Institute for Meteorology.Meteorology.Commissioned by the IPCC for the 4Commissioned by the IPCC for the 4thth assessment report. assessment report.

Even Under the most optimistic assumptions, the model suggests the Artic Even Under the most optimistic assumptions, the model suggests the Artic will be ice-free during the summer of 2090will be ice-free during the summer of 2090

Schiermeier, Q. Nature (2006), 439(7075), 374-375

In 1997 world leaders met in Kyoto Japan to shape, discuss In 1997 world leaders met in Kyoto Japan to shape, discuss and amend the United Nations Framework Convention on and amend the United Nations Framework Convention on Climate Change (UNFCCC).Climate Change (UNFCCC).

The amendment to the UNFCCC, known as the Kyoto The amendment to the UNFCCC, known as the Kyoto protocol, is an agreement under which Industrialized protocol, is an agreement under which Industrialized countries pledge to reduce their emissions of five countries pledge to reduce their emissions of five greenhouse gases (carbon dioxide, methane, nitrous Oxide, greenhouse gases (carbon dioxide, methane, nitrous Oxide, Sulfur Hexafluoride, HFC’s, and PFC’s) by 5.2% compared to Sulfur Hexafluoride, HFC’s, and PFC’s) by 5.2% compared to the Year 1990. the Year 1990.

The countries that ratified the protocol, agreed to meet this The countries that ratified the protocol, agreed to meet this quota by the year 2010.quota by the year 2010.

As of the beginning of 2006, a total of 160 countries have As of the beginning of 2006, a total of 160 countries have ratified the Kyoto protocol. ratified the Kyoto protocol.

Among the countries that have Among the countries that have NOT NOT ratified the ratified the agreement are the US and Australiaagreement are the US and Australia

Enter Carbon TradingEnter Carbon Trading

As a way to meet the demands of the Kyoto Protocol and to As a way to meet the demands of the Kyoto Protocol and to establish a system of economic incentives, members of the establish a system of economic incentives, members of the EU created the Emissions Trading Scheme (ETS), under EU created the Emissions Trading Scheme (ETS), under which companies can buy and sell equivalents of COwhich companies can buy and sell equivalents of CO22 emissions.emissions.

Any reductions on the emissions of COAny reductions on the emissions of CO22 could be sold as could be sold as credits to parties who did not meet their emission quota, credits to parties who did not meet their emission quota, creating a dynamic market where everybody wins!creating a dynamic market where everybody wins!

In 2005, the EU ETS, involving 12,700 industrial In 2005, the EU ETS, involving 12,700 industrial organizations, came into action across the 25 member organizations, came into action across the 25 member states.states.

By 2007, the EU market is expected to be worth 10 billion By 2007, the EU market is expected to be worth 10 billion Euros (~13 billion USD)Euros (~13 billion USD)

Hopkin, Michael. Nature (2004), 432(7015), 268-270

In 2002, the UK set out a “pilot” ETS, where 34 companies sold to In 2002, the UK set out a “pilot” ETS, where 34 companies sold to the government commitments to reduce emissions during the the government commitments to reduce emissions during the 2002-2006 period. 2002-2006 period.

The participating companies, committed to lower emissions by The participating companies, committed to lower emissions by 805 kilotonnes per year, for an economic incentive of 805 kilotonnes per year, for an economic incentive of £53.37/tonne of CO£53.37/tonne of CO22 equivalent ( equivalent ( ttCOCO22e).e).

The UK ETS is based on an “allowance” system, where a company The UK ETS is based on an “allowance” system, where a company holding one allowance can emit one holding one allowance can emit one ttCOCO22e e during one year. during one year.

Allowances are tradable, so a company that is under its permitted Allowances are tradable, so a company that is under its permitted emissions can sell its excess to a company with an emissions emissions can sell its excess to a company with an emissions deficit. deficit.

The emissions caps for the participating companies were decided The emissions caps for the participating companies were decided based on the following formula:based on the following formula:

Baseline – Agreed Reduction = CapBaseline – Agreed Reduction = Cap

Where the Baseline is the average of their emissions for the 3 Where the Baseline is the average of their emissions for the 3 years up to and including 2000. years up to and including 2000.

Heinen, R; Johnson, E. Environmental International 30 (2004) 279-288.

After baseline emissions are verified by an external party, After baseline emissions are verified by an external party, each participant is credited with allowances equal to its each participant is credited with allowances equal to its cap, for the five years of the UK scheme. cap, for the five years of the UK scheme.

If the participant submits a deficit of allowances, he is If the participant submits a deficit of allowances, he is charged a fine of £30 per charged a fine of £30 per ttCOCO22ee, and his allowances for the , and his allowances for the upcoming year would be reduced. upcoming year would be reduced.

The surplus and deficit of allowances is one of the The surplus and deficit of allowances is one of the incentives for trading emissions, although a party with a incentives for trading emissions, although a party with a surplus may chose to keep his allowances and “bank” them surplus may chose to keep his allowances and “bank” them for a future year. for a future year.

In the UK ETS, trading started at around In the UK ETS, trading started at around £12/£12/ttCOCO22e, e, which was much lower than the £53.37/which was much lower than the £53.37/ttCOCO22e e

clearing price due to:clearing price due to:1) Market Risk1) Market Risk2) Corporation Taxes2) Corporation Taxes

Heinen, R; Johnson, E. Environmental International 30 (2004) 279-288.

Heinen, R; Johnson, E. Environmental International 30 (2004) 279-288.

HOW WILL THE EU ETS WORK?HOW WILL THE EU ETS WORK?

The EU ETS will work in a similar way as the UK trading The EU ETS will work in a similar way as the UK trading scheme did. scheme did. The EU ETS will be divided into two sections, a pilot phase The EU ETS will be divided into two sections, a pilot phase from 2005-2007, and a “normal phase” from 2008-2012.from 2005-2007, and a “normal phase” from 2008-2012.

Emission limits are established by National Allocation Plans, Emission limits are established by National Allocation Plans, which have to be ratified individually for each EU member which have to be ratified individually for each EU member by the European Commission. by the European Commission.

Once the commission decides on the number of permitted Once the commission decides on the number of permitted emissions for each country, governments give away emissions for each country, governments give away emissions allowances to different industrial sectors. emissions allowances to different industrial sectors. Companies can trade their allowances in the international Companies can trade their allowances in the international market if they are below their cap, or buy from someone market if they are below their cap, or buy from someone who has a surplus of allowances. who has a surplus of allowances.

For the pilot phase, each excess For the pilot phase, each excess ttCOCO22ee will cost €40. After will cost €40. After 2007, it will be €100.2007, it will be €100.

The EU system will create the largest green house emission The EU system will create the largest green house emission market in the world. market in the world.

Approximately 4000-5000 facilities will participate, Approximately 4000-5000 facilities will participate, accounting for almost half of the total carbon dioxide accounting for almost half of the total carbon dioxide emissions from the European Union.emissions from the European Union.Countries that seem to be the most eager with Carbon Countries that seem to be the most eager with Carbon trading are UK, Denmark, Sweden, and the Netherlands. trading are UK, Denmark, Sweden, and the Netherlands.

These countries represent around 25% of greenhouse These countries represent around 25% of greenhouse emissions in Europe. emissions in Europe.

Since the EU plans to cut emissions by ~ 500 million Since the EU plans to cut emissions by ~ 500 million ttCOCO22e e per year, this means that within the countries described per year, this means that within the countries described above there would be an annual market of:above there would be an annual market of:

500 million 500 million ttCOCO22ee X 25% X $5 -10/ X 25% X $5 -10/ ttCOCO22ee= $625 million to $1.125 billion dollars. = $625 million to $1.125 billion dollars.

Heinen, R; Johnson, E. Environmental International 30 (2004) 279-288.

Norway’s allowances for the year 2005-Norway’s allowances for the year 2005-20072007

www.cicero.uio.no (Center for International Climate and Environmental Research)

US InvolvementUS Involvement

In the past, the US developed a trading scheme known as In the past, the US developed a trading scheme known as the Acid Rain Program (1990)the Acid Rain Program (1990)

The purpose was to reduce SOThe purpose was to reduce SO22 emissions from coal based emissions from coal based power plants.power plants.In the late 80’s, before the Acid Rain Program, the US In the late 80’s, before the Acid Rain Program, the US emitted ~16 million tonnes of SOemitted ~16 million tonnes of SO22..

By 2000, SOBy 2000, SO22 emissions had fallen to about 11 million emissions had fallen to about 11 million tonnes.tonnes.

In the US SOIn the US SO22 scheme trade only happened among a single scheme trade only happened among a single sector.sector.

Hopkin, Michael. Nature (2004), 432(7015), 268-270

ConclusionConclusionGlobal Warming is an alarming FACTGlobal Warming is an alarming FACT

COCO22 emissions MUST be cut down emissions MUST be cut down

Carbon trading offers a nice scheme where Carbon trading offers a nice scheme where everybody winseverybody wins

The success of the ETS depends on the pressure The success of the ETS depends on the pressure of government AND the participation of Industry.of government AND the participation of Industry.

The US MUST JOIN KYOTO AND CAP The US MUST JOIN KYOTO AND CAP EMISSIONS!!!!!EMISSIONS!!!!!

Questions?!?!?!?!Questions?!?!?!?!