The EU Emissions Trading System (EU ETS) is a cornerstone of the European Union’s policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. Launched in 2005, the EU ETS works on the ‘cap and trade’ principle. This means there is a ‘cap’, or limit, on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value. At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so.
According to the Kyoto Protocol of the United Nations Framework Convention for Climate Change (UNFCCC), those developing countries stipulated as Non-Annex I parties, are not obliged to set a mandatory cap or establish one of the UNFCCC’s “flexible mechanisms” such as ETS. However, several emerging economies with climbing emission levels (inter alia China, India and Brazil) have displayed potential interest to applying the emissions trading mechanism to curb their domestic emissions.
The overall objective of this project is to explore the potential of introducing emissions trading systems in China, India and Brazil and building technical capacity to develop and implement emission trading systems. The ETS project is designed to achieve a number of specific results, adapted and tailored to the specific circumstances of each of the participating countries:
- Analyzing the potential to introduce an ETS
- Assessing the business readiness to deal with relevant market infrastructures and institutions;
- Developing an understanding of the barriers and obstacles to introducing an ETS;
- Formulating accurate recommendations for the successful establishment of an ETS in the beneficiary countries;
- Developing a methodology to define a realistic business-as-usual emissions scenario;
- Ensuring the development of targeted information material on ETS
- Issuing concrete proposals for the development of a capacity building programme uniquely tailored to each beneficiary country’s needs.
DEVELOPMENT Solutions is leading the consortium implementing this project. Project partners are Ecoprogresso, The Climate Group and Winrock International India. All partners contribute vital technical know-how of ETS and long-term experience in the beneficiary countries in a complementary way facilitating a well-balanced and all-encompassing execution of the project.