How are carbon emission schemes working to reach the goals laid out in the Kyoto Agreement?
Maja Wojczak and Harriet Masterman
The Kyoto Agreement
The Kyoto Agreement was signed on the 11th of December 1997 and helped operationalise the United Nations Framework Convention on Climate Change (UNFCCC) 1992. However, due to its complexity it wasn’t formally ratified until the 16th of February 2005.
The overall aim was to commit industrialised nations to reducing their greenhouse gas emissions rate. The Protocol was there to act as a springboard for the implementation of various measures and policies that would see these nations reduce their emissions by 5% from their 1990 levels between the 2008-2012 (known as the first amendment period). It has since been cited as one of the most significant environmental treaties ever enacted.
The Agreement provided its signatories with recommendations for policies and measures they could implement to help reach their targets. Measures range in their scale and complexity, for instance the planting of trees to reduce CO2 in the atmosphere to the development of the international Clean Development Mechanism Program (CDM). The latter encouraged developed countries to invest in infrastructure in developing countries where there was opportunity to reduce emissions. Further approaches include emission trading which has become particularly relevant in UK political discourse following the decision to leave the EU. There now exists the UK Emission Trading Scheme (UK ETS) and the EU Emission Trading Scheme (EU ETS).
Despite these measures, critics have been keen to point out the plans failing. Both China and the Unites States are not signatories of the agreement and are the largest global emitters, therefore it begs the question how effective can the agreement be if the largest culprits for the increase in emissions are not members of the agreement seeking to combat this.
Carbon credits, carbon offsets, and the risks attached to EU ETS
Within jurisdictions that use the cap & trade system the ‘cap’ i.e., carbon emissions limit, is represented by carbon credits. In the UK, this system is regulated by The Greenhouse Gas Emissions Trading Scheme Order 2020. A single carbon credit represents one tonne of CO2e (carbon dioxide equivalent) that a participant of the carbon market is allowed to emit and the amounts of credits issued each year may not exceed the emissions target for that year. This system benefits the environment by providing participants with a financial incentive to reduce their carbon emissions. This is due to the fact that by reducing carbon emissions participants will not have to buy more credits and they can sell the credits that they do not need to other participants who do need them. Additionally, by lowering the emissions target (and therefore the number of credits issued) one can hope that over time participants of the carbon market will develop more innovative methods of further limiting their carbon and greenhouse gas emissions.
By contrast, carbon offsets are generated by companies removing a unit of carbon from the atmosphere e.g. by planting trees or investing in renewable energy. These offsets can then be purchased by other companies as a means of reducing their own carbon footprint.
That being said, no commercial exchange is without risk. Carbon leaking can occur when businesses transfer production to jurisdictions with more relaxed emissions regulations as a means of reducing costs related to climate policies. This practice can inadvertently increase a business’s total emissions. However as of December 2022, the EU has agreed on a way to mitigate the risk of carbon leakage via a carbon border tax called the Carbon Border Adjustment Mechanism (CBAM). The CBAM will require firms in the bloc to pay tariffs on certain carbon-intensive imports related to the cost under its ETS. This way EU industries will be more equally impacted by ETS emissions costs, thereby reducing the likelihood of transferring production to lesser-taxed jurisdictions and increasing the likelihood of achieving the Kyoto Protocol’s aims.