One of the latest to hop on to the tradeable permits bandwagon is oil giant Shell. It is studying plans for an international market for carbon trading, confirms a spokeswoman at the London office, though it is only one of a number of effective market based approaches for managing CO2 emissions Shell is looking at. Understanding of carbon trading schemes is still in its infancy, however, and there are no plans for immediate action, she says. A lot depends on the outcome of this year's climate change summit in Buenos Aires, she adds.
Jim Dawson, head of Shell International Renewables -- the group's newly created fifth core business -- said recently that he was encouraged by the success of the US market in permits to emit sulphur dioxide, which has resulted in reducing emissions of SO2.
Meantime, the London-based International Petroleum Exchange (IPE) -- the world's second largest market for trading energy derivatives -- has more advanced plans for a global market in carbon trading. A paper advising the UK government on how it could take the concept forward was due to be published at the end March. Meanwhile, the largest energy futures market in the world, the New York Mercantile Exchange (NYMEX), is also understood to be developing its own model.
Yet another supporter of emissions trading is the European Business Council for a Sustainable Energy Future, based in the Netherlands. "Internal use of emission trading in Europe is a good policy and a measure that helps share the benefits and makes visible how cheap the no-regret emission reductions are," says Paul Metz of the council. "Many in Europe still underestimate these instruments, that can be very effective." He points out that the ongoing "burden sharing" discussions between EU member countries would be ended immediately if the market was allowed to establish where the most efficient cuts could be made. In most cases emissions trading is more efficient than command and control regulations and more effective than voluntary or negotiated actions. "Emission trade within the EU should be started in the short term," says Metz. "Don't negotiate, but trade."
The council advocates a "renewable portfolio obligation" for all energy service companies (ESCOs), rising to 15% of the energy mix in 2010. As liberalisation proceeds, "this will stimulate all ESCOs to invest in the most appropriate renewables for each local and regional condition." A trade mechanism in each EU country should be established for emission quota or emission reduction credits on national greenhouse gas emission exchange markets.
Tradeable quotas blueprint
On a different scale, London-based David Fleming from the Lean Economy Initiative has drawn up a blueprint for a market in tradeable quotas that would operate within a country, rather than across borders. Fleming urges a national market in "carbon units" overseen by a central agency. The scheme has echoes of post-war rationing; all consumers would be allocated carbon units, which they use up as they buy energy or fuel from their suppliers.
Under the scheme, the domestic sector -- which in the UK accounts for 45% of all carbon emissions -- would receive a free entitlement to carbon units. These would be allocated equally among all adults. Industry, commerce, central and local governments and public transport would tender for the remaining 55%, which could then be traded in the market. A year's supply of quotas would be in circulation at all times and topped up daily.
Transactions would take place electronically using technologies already in place for direct debit systems and credit cards. Government would set the carbon budget -- reducing it yearly in line with the country's emissions reduction commitments. Revenue from the tender could be used for energy conservation measures.
Tradeable quotas are more effective than green taxes because they bear directly on reducing carbon emissions, claims Fleming. The entitlement of an equal quantity of carbon units gives every adult free and fair access to a baseline quantity of fuel or energy, with the option of earning revenue from the sale of spare units. He argues that they would also lead to lower fuel costs and be more flexible than carbon taxes.