CO2 Trading – Carbon a commodity?
It is well-known that most human activities and productions depend on energy produced by the burning of fossil fuels. Carbon dioxide, a green house gas, is emitted during the process and contributes to climate change. From the latest estimate, global CO2 emission from fossil fuel combustion in 2007 totalled 28.96 billion tonnes per year, a 38% increase from 1990 levels. The Kyoto Protocol is a joint global effort to reduce greenhouse gas emission, where over 170 participating countries set quotas for their carbon emission and trade them in the form of carbon credits (1 credit = 1 tonne of carbon dioxide or its equivalent). For an example, a steelmaker in England has an emission quota of 30 tonnes carbon dioxide per year (30 carbon credits) but it is looking to purchase an additional 10 credits as it expects to release 10 more tonnes of carbon dioxide than allowed. It can then buy 10 credits from a German automobile manufacture that is operating below its allowance.
Trading Participants
All countries in Europe participate in the Kyoto Protocol, carbon credits can be traded through an EU or UN system, such as the European Climate Exchange (ECX). The European Climate Exchange is now the leading exchange operating in the European Union Emissions Trading Scheme.
In North America, the US and Canada are not Kyoto participants but has their own initiatives to reduce green house gas emissions. The US has not ratified the Kyoto Protocol. Canada has ratified the Protocol but has not implemented it. Both countries are barred from trading in the EU or UN system. In the US, companies that volunteered to participate in carbon trading trade at the Chicago Climate Exchange, equivalent of the Pink sheets for climate credit trading. In Canada, green house gases trade at the Montreal Climate Exchange (MCX). The Canadian government is committed to reducing the country’s total greenhouse gas emissions by 20 per cent from 2006 levels by 2020 and by 60 to 70 per cent by 2050.
Size of the Carbon Credit Market
Kyoto Compliant credits go for $18-$20/tonne. Prior to the financial meltdown, they used to be priced at over $40. As companies sold their credits to raise cash, the value of the credits dropped as a result.
The global size of the carbon credit market is approx $125 billion/year. It is forecast to grow to $1.2 trillion by 2012 once the US comes on board.
How are Carbon Credits generated?
There are two distinct types of Carbon Credits: Carbon Offset Credits (COC’s) and Carbon Reduction Credits (CRC’s).
Carbon Offset Credits are generated from adopting forms of clean energy, such as biofuel, solar, wind and hydro.
Carbon Reduction Credits are generated by capturing and storing carbon from the atmosphere. It can be done through various carbon sequestration techniques, including reforestation, carbon storage in saline aquifers, soil and aging oil fields.
Carbon Dioxide Mitigation and Storage Methods
The first step toward CO2 mitigation starts from root of the issue: the conservation and the efficient use of energy. Switching from coal burning to emission-free or low emission alternative forms of energy like hydro and geothermal helps to curtail CO2 emission. For CO2 that cannot be eliminated from conservation efforts, there are further mitigation method available:
CO2 Mitigation and Storage Methods
Source: Oak Ridge National Laboratory Review, Vol. 33, No. 2
- Storage in geological formation such as deep saline aquifers, depleted oil and gas fields, in coal seams.
- Storage in fertilized ocean water where plankton growth increases CO2 absorption from the atmosphere.
- Storage in soil through agriculture and forestry
Critics of CO2 credit and mitigation methods:
Since the implementation carbon credits, there have been numerous challenges and incidents of abuse and fraud of the system. Some companies have threatened to relocate their operations to countries where it is cheaper to implement carbon reduction measures. In order to prevent job loss, the local government has granted extra CO2 credits to the companies as a ‘bribe’ . This results in an unexpected windfall for the companies, who can then sell the extra credits for cash. The existing trading system is a work in progress and incidents of fraud have been reported.
Global systems, whether oceanic or economic, are complex. A modification in the system with benign intentions might yield unexpected results in the long run. The move to biofuel production has caused unexpected rise in the prices agricultural produce. A move to accelerate CO2 intake in the ocean through fertilization could bring uncontrollable algae blooms. However, this should not serve as discouragements to our continued effort that is our moral obligation to fight the most critical environmental issue that affects every living thing on our planet.
Sources:
Canada’s Action on Climate Change
http://www.climatechange.gc.ca/default.asp?lang=En&n=72F16A84-1
International Energy Agency – CO2 Emission from Fuel Combustion Highlights, 2009 Edition.
http://www.iea.org/co2highlights/CO2highlights.pdf
Oak Ridge National Laboratory Review, Vol. 33, No. 2
http://www.ornl.gov/info/ornlreview/v33_2_00/research.htm
Ruby Canyon Engineering
http://www.rubycanyoneng.com/co2-sequestration.html
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