CaP& Trade as a Model to Tackle Contemporary Environmental Challenges

Command and control environmental governance model is commonly used approach to protect environment and enhance sustainable resources utilizations. Now many countries are moving to introduce new model as complementary instrument. One of these environmental regulatory models is to setting and implementing discharge or emissions limits. In contemporary environmental governance system, the “Cap -and-Trade” system regulatory is well known.

The model requires to define total amount of pollutants that emitters are allowed to discharge is first capped by the government. The?government?then?gives?the?authority?to?emit?pollutants?through emissions permits by establishing a maximum limit on emissions. An emission allowance is a permit to emit pollutants; the cap places a limitation on the overall number of allowances. The new model works when there is market that encourages the cap could be traded by credit owner with the intent of resources efficiency or sustainable utilization of the environment.[1] Allowances become a price signal for the cost of emitting when companies or individuals purchase and sell them since they are tradable and bankable assets.

The system establishes a “cap” on maximum emissions to reduce aggregate emissions from defined group of emitters. The?cap?on emissions or discharges that drive polluters to limit on their discharges. On the other hand, the trade component creates a market. Often the Price in the market determined by the market forces – demand and supply. Through such economic scheme, the individuals, firms, or industries that reduce their emissions more quickly can maintain their permitted allowance for later use or sell them to persons or companies that pollute more. The measure expands the pool of resources that is available to make cuts, incentives business to decrease emissions more quickly, and it rewards innovations and technology developments. The businesses have a tremendous incentive to save costs by reducing emissions. The Ethiopian Pollution control proclamation provides rules that requires the formulation of “Air quality standards that specify the ambient air quality and give the allowable amounts of emission for both stationary and mobile air pollution sources.”[2] Effluent dischargers should obtain permits from the Ministry before becoming involved in water resource development.[3] However, the existing policies yet introduce cap and trade model to regulate polluter through cost internalization.

Most?climate?experts?agree?that?human?activity?is?what?causes?the?climate?system.?While?the?release?and?absorption?of?carbon?on?our?planet?occurs?naturally?in?a?continuous?cycle,?the?burning?of?fossil fuels,?extensive?deforestation,?and?other?human?activities?have?all?resulted?in?the?release?of?more greenhouse gases than naturally absorbed and recycled by the world’s oceans and forests. The average temperature of the entire planet is continually rising because of the atmosphere’s rising GHGs. To?achieve?the?significant?emission?reductions?required?to?tackle?climate?change,?we?would have to substantially cut our energy usage, stop deforestation, and extensively switch to renewable energy sources.

Under the Paris Agreement, nationally determined contributions (NDCs) are at the heart to translate its long-term goals into domestic actions. NDCs embody efforts by each country to reduce national emissions and adapt to the impacts of climate change. The Agreement?requires each Party to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve.[4] As economic instruments, carbon markets have emerged as one of the mechanisms to incentivize businesses and communities. The markets offer an incentive to invest in technologies and other effeminacy and circularity practices that reduce carbon footprints. Under the Kyoto Protocol, emissions trading as cap-and-trade introduced. To create scarcity, a limited number of emissions allowances are issued in relation to the global target for a defined period. The Parties with commitments under the Kyoto Protocol (Annex B Parties) have accepted targets for limiting or reducing emissions. The targets are expressed as levels of allowed emissions, or assigned amounts, at?over the 2008-2012 commitment period. The allowed emissions are divided into assigned amount units?(AAUs) and each AAU is equal to one ton of CO2e. Emissions trading, under the Kyoto Protocol, allows countries that have emission units to spare - emissions permitted them but not "used" - to sell this excess capacity to countries that are over their targets.[5] The parties that could reduce their emissions below their target may sell their surplus AAUs to countries that have not been able to meet their emission reduction targets and have exceeded their quota.[6] The market system gives options that the parties to choose investing in reducing their own emissions or to buy credits from others. The Kyoto protocol has also introduced two other market mechanisms known as Joint Implementation and the Clean Development Mechanism (CDM).[7] The mechanisms allow the projects that reduce GHG emissions or sequester CO2 can register their activities with the UNFCC. Once the emission reductions from their projects are verified, the entities would receive carbon credits that might be sold to other organizations.

In addition, international market, the Parties may develop domestic carbon market with the aim of achieving the objectives of such contributions. Carbon credits only exist in jurisdictions that are governed by what’s called a?“Cap and Trade”). The system aims to reduce greenhouse gas emissions by limiting (capping) how much greenhouse gases that groups of companies can use while it allows companies to buy and sell carbon credits. The European EU ETS operates by placing an emissions cap on the biggest industrial facilities and is based on the same methodology as the Kyoto Protocol.[8]

In United states, in 2009, about 85% of all greenhouse gas emissions applied to about 7500 entities to meet the totality of greenhouse gases emissions.[9] China launched the initial phase of a?national carbon market in 2017 with help from EDF.[10] The voluntary market enables companies and individuals to offset their carbon emissions on a voluntary basis by purchasing carbon credits generated from projects that either reduce GHG emissions or capture carbon from the atmosphere. Such market would not subject to laws that require them to reduce or offset their GHG footprints. The voluntary market operates parallel to the market that are established by laws and largely based on the Kyoto market models.

?Since the adoption of the Kyoto Protocol, carbon credits have become a hot topic in the development of climate policy. A unit of measurement that may be viewed as a "tradeable" component, a carbon credit is also known as a carbon incentive or allowance. Carbon rights or credits are concrete economic incentives created under climate policy tools in a market-based climate action. The notion carbon right remains poorly defined as it lacks working definition that guides the term usage.[11] At present, there is no single operational definition of ‘‘carbon rights’’ at the international level to avoid misuse and confusions. It might be defined ‘‘intangible assets created by legislative and contractual arrangements that allow the recognition of separate benefits arising from the sequestration of carbon in the biomass’’. [12]

When compared other sectors, the contention over the notion carbon right is tense in the mitigation of forestry-related climate change. The reasons for the contention are carbon sequestration and removal in the forest sector is linked to land tenure issues.[13] Some countries divorce the carbon right over forest from actual forest owners. Other countries give forest owner to entitle carbon rights. Such model avoids government and other societal groups competition over the carbon credits.?Another challenge in defining emission reduction right over forest is the ideas of additionality, permanence and minimisation or risk of leakage. All these add divergence on our understanding to the concept.

Under the Marrakesh Accords having defined CDM rules in 2001 specify that the project boundary shall ‘‘encompass all anthropogenic emissions by sources and/or removals by sinks of greenhouse gases under the control of the project participants that are significant and reasonably attributable to the [CDM] project’’. This accord made complicated carbon credits expanding the boundary of conventional REDD+. All efforts brought improvement on land management would be considered upon carbon rights determination processes.??That makes it is at most important establishing who has rights to emissions reductions to protect the credits owner right while giving strong guarantee for the person whom the right transferred through market mechanisms created.

Reducing the carbon footprints left by human activities have emerged as a key component of the current national and international climate policy. In December 2010, parties to the UN Framework Convention on Climate Change (UNFCCC) affirmed that an international mechanism to reduce emissions and increase sequestration by forests (REDD+) will be a central element of the international response to climate change.[14] The REDD+ intends to reduce emissions from deforestation, reducing emissions from forest degradation, conservation of forest-carbon stocks, enhancement of forest-carbon stocks and sustainable management of forests. ?Through the deliberations, the idea of “carbon rights” has just lately come to light. Clarity of property rights will have a critical to transact emission reduction rights.[15]

Carbon is a new commodity that emerged with climate change action at international and local levels. The relationship between land ownership and carbon ownership remains unclear in many developing countries. ?In some countries, there is clear linkage between land and carbon ownerships. In other countries there is no such interrelationship. In Ethiopia, despite some ownership contentions, land is under state and Ethiopian people ownership. Emission reduction right follows land ownership or forest tenure is highly debatable. Clarity of the title influences on the ability of individuals and communities to participate in the decision-making processes.[16] In many developing countries, property rights are poorly defined.[17]

References

[1] Dong, C., Shen, B., Chow, PS.?et al.?Sustainability investment under cap-and-trade regulation.?Ann Oper Res?240, 509–531 (2016). https://doi.org/10.1007/s10479-013-1514-1

[2] Ethiopian Environnemental Pollution Control Proclamation No300/2002, Article 6 Sub. Article c

[3] The Water Resources Management Proclamation NO. 197/200article 11

[4] The Paris Agreement, 2015, Article 4, paragraph 2

[5] Article 17 of the Kyoto Protocol, 1997

[6] ?Article 17 of the Kyoto Protocol, 1997

[7] The Kyoto Protocol, Article 6 and Article 12

[8] Michiel Arnoldus & Roger Bymolt, Demystifying Carbon Markets A Guide to Developing Carbon Credit Projects, KIT Publishers,

[9] See MARK HOLT & GENE WHITNEY, CONG. RESEARCH SERV., R40643, GREENHOUSE GAS LEGISLATION: SUMMARY AND ANALYSIS OF H.R. 2454 AS PASSED BY THE HOUSE OF REPRESENTATIVES 6, 84 (2009), available at https://www.nationalaglawcenter.org/assets/crs/R40643-1.pdf.

[10] Ibid

[11] Peskett, L., Brodnig, G., 2011. Carbon Rights in REDD+: Exploring the Implications for Poor and Vulnerable People. World Bank and REDD-net

[12] . (TCG UN-REDD, 2009; Streck and O’Sullivan, 2007 – cited by Peskett and Brodnig, 2011).

[13] Alain Karsenty , Aure′lie Vogel?, Fre′de′ric Castell , ‘‘Carbon rights’’, REDD+ and payments for environmental services, Environmental Science & Policy, Volume 35,?January 2014, Pages 20-29

[14] UNFCCC. 2010. “Decision 1/CP.16: Outcome of the work of the Ad hoc Working Group on Long-term Cooperative Action under the Convention.” Document number FCCC/AWGLCA/2010/L.7. https://unfccc.int/files/meetings/cop_16/application/pdf/cop16_lca.pdf.

[15] Usaid Issue Brief Land Tenure and Redd+ Risks To Property Rights And Opportunities For Economic Growth, P.2

[16] Ibid

[17] ibid