The global trade in emissions
Click here for a graphical representation of the information.
Emission markets, or carbon markets, were first formalised through the Kyoto Protocol of 1997 in which 175 countries agreed on establishing market mechanisms and trading plans to reduce global carbon emissions.
In January 2005, the Kyoto mechanism was adopted for carbon trading by all the countries within the European Union under its Emissions Trading Scheme (EU ETS). The ETS is the pillar of EU climate policy.
Carbon markets provide a way for governments to reduce greenhouse gas emissions by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading. Companies and organisations determine the most cost-effective manner of reducing their emissions, either through investing in ‘clean’ machinery and practices, or by purchasing credits from another organisation which has excess capacity.
Emission markets have been around since the early 1990s. They can be traced back to the US Clean Air Act of 1990, which permitted trading of sulphur dioxide allowances to reduce acid rain in the USA. This showed how the environment can benefit from emissions management through a system of trading credits on an open market.
The Kyoto Protocol provides for three mechanisms that enable countries or operators in developed countries to acquire greenhouse gas reduction credits. These mechanisms are Joint Implementation (JI), Clean Development Mechanism (CDM) and International Emissions Trading (IET). It has been suggested that carbon will be the world's biggest commodity market and it could become the world's biggest overall. Carbon markets, however are still young and volatile and tend to evolve according to national and regional policies.
South Africa is a major emitter of greenhouse gases, but lags in its number of Clean Development Mechanism (CDM) schemes.
Not everyone agrees that emission trading is the best way forward. Some experts are strongly in favour of a carbon tax. They say its simple and economically a more efficient means of achieving the same objective (reducing greenhouse gas emissions). Some countries have both a carbon tax and an emissions market (also called cap-and-trade).
In South Africa, legislation is likely to be brought in to cut emissions by the latest 2012. It is not clear at this stage whether South Africa will go the carbon tax route or cap-and-trade.
Reporting on GHG emissions
Various guidelines have been developed for reporting and measuring GHG emissions by companies and organizations. There is no global accounting standard.
The Carbon Disclosure Standards Board (CDSB) released a draft Reporting Framework in May 2009 aimed at providing guidance for companies on climate-change related disclosure in their mainstream financial reports. It brings together the practices and standards used in measuring and reporting GHG emissions (including the GHG Protocol and ISO). The Framework offers four disclosure guides: strategic analysis, regulatory risks of climate change, physical risks of climate change, and GHG emissions. www.cdsb-global.org
The Carbon Disclosure Project (CDP) holds the greatest database of the GHG emissions by companies in the world. It is run by the CDSB and is a widely used guideline on reporting disclosure content and format. www.cdproject.net
The GHG Protocol was created by the World Business Council for Sustainable Development (WBSCD) and the World Resources Institute (WRI). It is regarded as the de facto standard for GHG emissions quantification and management. www.ghgprotocol.org
Some countries have their own regulations prescribing the reporting and disclosure of GHG emissions.
Carbon tax or cap-and-trade?
Whilst this is a fairly new debate in South Africa, it has in fact been raging in Europe and North America for almost two decades. Indeed if you Google this question you will receive over 25000 responses.
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South Africa: Friendlier tax treatment on Carbon Credits
In a bid to encourage the use of Clean Development Mechanism (CDM) projects in South Africa and encourage energy efficiency, there are two amendments to tax legislation that were contained in the Taxation Laws Amendment Act, 2009.
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