“The European Union (EU)
emissions trading scheme,” Zhang continued, “and
the clean development mechanism (CDM) under the Kyoto Protocol,
link the two seemingly unrelated matters and have created a
completely new industry worth multi-billions of euros.”
The conference in the former East German city continued through June 10 and included
six plenary sessions and 53 concurrent sessions. According to its organizers, “The
plenary sessions are the platform for making the expert knowledge of the keynote
speakers known to a broader audience.”
Zhang’s message to that broader audience was that cutting carbon emissions
can be a lucrative business opportunity as well as good for the environment.
“ Few anticipated this development a few years ago,” Zhang said,
but it became a reality when the EU emissions trading scheme became effective
Jan. 1, 2005 and the Kyoto Protocol clean development mechanism was implemented
later on Feb. 16.
According to Zhang, emissions trading was a concept pioneered in the United States
as a means of tackling the acid rain problem. The U.S. lobbied intensively for
it to be part of the Kyoto Protocol while the EU was in favor of environmental
taxes and other measures and policies to curb the outflow of greenhouse gases.
“ But,” Zhang said, “it was the EU that put into operation
the world’s largest multi-country, multi-sector carbon dioxide emissions
trading scheme last year, three years before the Kyoto Protocol mandates to cut
emissions are to
come into effect.
“ Under the scheme,” Zhang continued, about 11,500 power installations
and energy-intensive industrial plants are allocated a certain number of carbon
dioxide allowances by their governments subject to approval from the European
Commission. One allowance represents the right to emit one ton of carbon dioxide.
If they emit more than their allocated allowances, they need to buy extra allowances
to make up the shortfall. If they do not use their allowances, they are allowed
to sell what remains.”
By placing a cost on carbon emissions and a value on reductions, the emissions
trading scheme is creating market incentives that, according to Zhang, “drive
companies to keep coming up with better and cheaper ways to cut their emissions.”
And emissions trading can be profitable. “During its first year of operation,” Zhang
continued, “the EU emissions trading scheme has witnessed an extraordinary
amount of ‘business’”: some 362 million EU CO2 allowances were
bought and sold last year, with a total value of 7.2 billion euros (approximately
U.S. $8.6 billion).
According to the EU’s own figures the scheme is working to cut emissions.
By the first compliance deadline of April 30 of this year, the 21 countries under
EU supervision emitted 2.5 percent less than allowed under their 2005 quota.
A few countries, such as the United Kingdom and Spain, missed their targets,
but the overall results indicate that the trading scheme works effectively.
Along with the EU allowances market, the clean development mechanism (CDM) credit
market is enjoying remarkable growth. The CDM allows industrialized countries
to generate emission credits through investment in emission reduction projects
in developing countries.
In December 2004, Zhang said, there was only one registered CDM project, with
only 60 in development. A year later, 40 projects were registered and 500 were
in development. “Now,” Zhang said, there are 203 CDM registered projects
and another 560 in the evaluation process.”
Zhang added: “The reduction potential of these currently known CDM projects
is estimated to be over 978 million tons of carbon dioxide by 2012, the end of
the first commitment period under the Kyoto Protocol.”
Put into perspective, Zhang said, “This reduction potential is as much
as the current greenhouse gas emissions of Germany, and corresponds to one-fourth
of the total emissions in the 15 countries within the EU at the time of the adoption
of the Kyoto Protocol in 1997.”
Zhang believes that contrary to arguments put forth by opponents to the Protocol, “These
numbers speak for themselves. Developing countries are indeed already participating
in global efforts to cut greenhouse gas emissions in a meaningful way.”
Zhang also sees significant changes in the geographical distribution of CDM projects,
too. “Until late-2003, both China and India lagged behind Latin America,” he
noted. “But, India has caught up very quickly and emerged as the leading
supplier of carbon credits in the world.”
China may have been lagging behind, but no more.
“ There were very few CDM projects in China during the first few years
century,” Zhang says. “But, the giant has awakened and implemented
huge transactions on credits from a few large HFC23 projects. Zhang explained
that HFC23 “is a by-product in the production of the refrigerant HCFC22.
Its global warming potential is 11,700 times that of carbon dioxide. This means
the releasing of one ton of HFC23 into the atmosphere is equivalent to 11,700
tons of carbon dioxide emissions.”
With 33 percent of the world’s total estimated carbon credits by 2012,
China is now the largest seller, even though “India still leads the market
in terms of number of projects at the same stage of development,” Zhang
ZhongXiang Zhang can be reached at (808) 944-7265 or via e-mail at ZhangZ@EastWestCenter.org.