Under the Kyoto Protocol the 'polluters' are countries that have agreed to targets for reducing their emissions of gases in a pre-defined time period. The polluters are then given a number of ‘emissions credits’ equivalent to their 1990 levels of emissions minus their reduction commitment. These credits are measured in units of greenhouse gases, so one ton of CO2 would equal one credit. The credits are licences to pollute up to the limits set by the commitment to achieve the average reduction of 5.2 per cent agreed in Kyoto. The countries then allocate their quota of credits on a nation-wide basis, most commonly by ‘grandfathering,’ so that the most polluting industries will receive the biggest allocation of credits. In this system it pays to pollute.

Several possibilities then exist:

1. The polluter does not use its whole allowance and can either save the remaining credits for the next time period (bank them), or sell the credits to another polluter on the open market.

2. The polluter uses up its whole allowance in the allotted time period, but still pollutes more. In order to remain in compliance, spare credits must be bought from another polluter that has not used up its full allowance.

3. The polluter can invest in pollution reduction schemes in other countries or regions and in this way ‘earn’ credits that can then be sold, or banked, or used to make up shortfalls in its original allowance.

Credit-earning projects that take place in a country with no reduction target (mostly in the ‘developing’ world) come under the contentious rubric of the 'Clean Development Mechanism' (CDM). There have already been signs that traditional Overseas Development Aid (ODA) given by developed countries will be used to fund CDM projects. Instead of building wells, rich countries can now plant trees to ‘offset’ their own pollution. Projects which take place in countries with reduction targets come under Joint Implementation (JI). For example, an energy efficiency program in Poland funded by a UK company could qualify. It appears that JI projects will mainly take place in Eastern Europe and Russia, where equivalent reductions can be made more cheaply as costs and regulatory standards are lower.

Both CDM and JI projects can be of different kinds: monoculture tree plantations, which theoretically absorb carbon from the atmosphere ('carbon sinks'); renewable energy projects such as solar or wind projects; improvements to existing energy generation; etc. The amount of credits earned by each project is calculated as the difference between the level of emissions with the project and the level of emissions that would occur in an imagined alternative future without the project. With such an imagined alternative future in mind, a corporate polluter can conjure up huge estimates of the emissions that would be supposedly produced without the company’s CDM or JI project. This stratagem allows for a high (almost limitless) number of pollution credits that can be earned for each project. It allows the company to pollute more at other sites, to sell its credits to other polluters, or to engage in a combination of these lucrative tactics. Its long-term consequences are (1) increased greenhouse gas emissions and (2) increased corporate profit obtained from their production.

There is yet another provision in emissions trading that introduces increasing levels of complexity and confusion: the pollutants are interchangeable. In effect, a reduction in the emission of one greenhouse gas (e.g. carbon dioxide) enables a polluter to claim reductions in another gas (e.g. methane). Thus, progress in “cleaning up” the atmosphere might appear to be going forward, while closer scrutiny reveals that no actual improvement is taking place.

SinksWatch

CDMWatch

The Corner House

Environmental Data Services (ENDS)

Point Carbon: news and analysis portal for pollution trading in Kyoto

The Sky is Not the Limit: the emerging market in greenhouse gases