The CO2 market

The greenhouse effect

Global climate change roots in the enhanced greenhouse effect caused by human activity. Human activities, in particular the development of industry over the last 200 years, have caused an increase in the emission and atmospheric concentration of certain gases, called "greenhouse gases" - primarily carbon dioxide and methane. These gases intensify the natural greenhouse effect that occurs on Earth, which in itself allows life to exist. The man-induced enhanced greenhouse effect leads to an increase in the average temperature of the planet that, if left unchecked, would potentially cause increasingly severe and perhaps even catastrophic disruptions to the Earth’s climate, and consequently human activity.

Consensus scientific projections estimate that the average global temperature will rise by between 1.4°C and 5.8°C by the year 2100 if the current rate of increase in emissions is not curbed. Moreover, state of the art climate modelling projects that even a small rise in temperature will be accompanied by changes in climate, with potentially very damaging environmental consequences, such as:

  • - sea level rise: possible rise in the average global sea level of between 20cm and 88cm by 2100, leading to a greater risk of flooding in low-lying and deltaic regions;
  • - increase in the incidence of variable and severe weather conditions such as storms and monsoons;
  • - harmful consequences for human health from more frequent heat-waves, vector-borne diseases and reduced availability of drinking water;
  • - eco-system damage to sensitive environments such as, inter alios, glaciers, coral reefs and atolls, mangroves and prairie wetlands;
  • - extreme events such as cyclones, hurricanes, ice storms, blizzards and rain storms may increase in frequency.
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The greenhouse gases (GHG)

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(1) Global Warming Potential – factors defined by ICC-Intergovernmental Panel for Climate Change (1996)

The Kyoto Protocol

The Kyoto Protocol is an agreement designed under the United Nations Framework Convention on Climate Change (UNFCCC).

The Kyoto Protocol is legally binding for Annex B countries, i.e. 37 industrial countries and economies in transition. These countries will cut their greenhouse gas (GHG) emissions of about 5% from 1990 levels in the commitment period 2008-2012. 192 countries have ratified the Kyoto Protocol to date.

Annex I countries of the UNFCCC:

Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia**, Czech Republic**, Denmark, Estonia, European Union, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy**, Japan, Latvia, Liechtenstein**, Lithuania, Luxembourg, Monaco**, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation**, Slovakia ** Slovenia **, Spain, Sweden, Switzerland, Turkey **, Ukraine **, United Kingdom of Great Britain and Northern Ireland, United States of America

* Observer State
** Party for which there is a specific COP and/or CMP decision

Non Annex I countries:

Afghanistan, Albania **, Algeria, Angola, Antigua and Barbuda, Argentina, Armenia **, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belize, Benin, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, Chile, China, Colombia, Comoros, Congo, Cook Islands, Costa Rica, Cuba, Cyprus, Côte d’Ivoire, Democratic People’s Republic of Korea, Democratic Republic of the Congo, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, The former Yugoslav Republic of Macedonia, Gabon, Gambia, Georgia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, India, Indonesia, Iran (Islamic Republic of), Iraq, Israel, Jamaica, Jordan, Kazakhstan **, Kenya, Kiribati, Kuwait, Kyrgyzstan, Lao People’s Democratic Republic, Lebanon, Lesotho, Liberia, Libyan Arab Jamahiriya, Madagascar, Malawi, Malaysia, Maldives, Mali, Malta, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia (Federated States of), Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nauru, Nepal, Nicaragua, Niger, Nigeria, Niue, Oman, Pakistan, Palau, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Qatar, Republic of Korea, Republic of Moldova **, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Sao Tome and Principe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Singapore, Solomon Islands, Somalia, South Africa, Sri Lanka, Sudan, Suriname, Swaziland, Syrian Arab Republic, Tajikistan, Thailand, The former Yugoslav Republic of Macedonia, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkmenistan ** , Tuvalu, Uganda, United Arab Emirates, United Republic of Tanzania, Uruguay, Uzbekistan **, Vanuatu, Venezuela (Bolivarian Republic of), Viet Nam, Yemen, Zambia, Zimbabwe

* Observer State
** Party for which there is a specific COP and/or CMP decision

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The Kyoto Protocol : the first collective response to climate change

On 16 February 2005, the Kyoto Protocol entered into force.

Kyoto Protocol Map

Signed but didn’t ratify the Kyoto Protocol: United-States

Didn’t sign, access, nor ratify Kyoto: Afghanistan, Andorra, Saint Christophe and Niévès, Saint Marin, Taiwan, Vatican, Zimbabwe, Western Sahara

The flexibility mechanisms

The Kyoto Protocol includes three so-called ‘flexibility mechanisms’, instruments which allow governments in industrialized countries to achieve parts of their emission reduction commitments under the Kyoto Protocol through projects abroad rather than through action or policy changes at home. This allows the parties under the Kyoto Protocol to reach their commitments at the lowest cost.

Emissions Trading: The emission trading-mechanism will allow industrialized countries to buy and sell greenhouse gases emission credits from and to other countries to help meet their domestic reduction targets.
Countries that keep emissions below their agreed target will be able to sell the excess emissions to countries that find it more difficult or more expensive to meet their own targets.

Joint Implementation (JI): Joint Implementation under the Kyoto Protocol allows industrialized countries (Annex B countries) to meet part of their required cuts in greenhouse-gas emissions by paying for projects that reduce emissions in other Annex B countries. In practice, this will likely mean facilities built in the countries of Eastern Europe and the former Soviet Union – the "transition economies" – supported by Western European and North American countries.

Clean Mechanism Development (CDM): Clean Mechanism Development allows Annex B countries to meet part of their required cuts in greenhouse-gas emissions by investing in projects that reduce emissions in non Annex B countries.

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So-called project-based « flexibility mechanisms » link Kyoto credits to the credits exchange market in Europe (EU-ETS)

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Source : "Linking Directive" de l’UE
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The European Union Emissions Trading Scheme (EU ETS)

Under the Kyoto Protocol, the European Union is committed to reduce its GHG emissions by 8% below its 1990 level by 2008-2012.

Early in 2005, the EU has developed the European Union Emissions Trading Scheme (EU ETS), the largest multi-national greenhouse gas emissions trading scheme in the world, to anticipate its Kyoto target.

Under this scheme, each participating country has drawn a National Allocation Plan (NAP)* setting yearly CO2 emissions quotas for 10.600 industrial installations across the EU Member States. These quotas are materialized by allocations of “European Emission Allowances" (EUAs). One EUA represents the right to emit 1 ton of CO2.
Industrial sites are allowed to restitute CERs/ERUs instead of EUAs (1 CER/ERU <-> 1 EUA) to a limit which varies country by country.

To comply with restrictive CO2 emission allowances, facilities can either:

  • - reduce their emissions,
  • - purchase EUAs from others facilities, or
  • - acquire carbon credits from Kyoto flexibility mechanisms.

* for more information on NAP, go to http://ec.europa.eu/environment/climat/emission/2nd_phase_ep.htm

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