What is carbon trading? | CNBC International

Summary

The video discusses the importance of reducing greenhouse gas emissions and the role of carbon trading in combating climate change. Carbon trading, or 'cap-and-trade,' sets emission limits and allows companies to buy or sell carbon credits, creating financial incentives to reduce their environmental impact. While the system has had successes, such as in the EU, challenges remain, including potential loopholes and inequality between developed and developing nations. The video explores global carbon markets, their growth, and their role in achieving net-zero emissions by 2050, asking viewers to weigh in on its effectiveness.

Takeaways

• 🌿 Reducing greenhouse gas emissions is essential in combating climate change.
• 💼 Carbon trading is a market-based system designed to incentivize emission reductions.
• 🌍 Carbon trading operates on a 'cap and trade' model, where emissions are capped and allowances are tradeable.
• 📈 Carbon allowances are allocated to companies based on historical emissions and can be bought or sold.
• 💰 The price of carbon credits is determined by market forces of supply and demand.
• 📉 Assigning a cost to emissions encourages businesses to find and implement cost-effective emission reduction strategies.
• 🚨 The first international carbon market under the Kyoto Protocol faced corruption and inefficiency, leading to its collapse.
• 🌐 There are various regional carbon trading markets worldwide, including the EU, Canada, and China.
• 📊 The value of global carbon markets has been growing, reaching €194 billion in 2019.
• 🔄 The EU's 'market stability reserve' mechanism adjusts carbon unit supply to stabilize prices and incentivize emission reductions.
• ♻️ Critics argue that carbon trading might allow for作弊, relocation of polluters, and distract from the need to transition away from fossil fuels.

Q & A

What is carbon trading, and how does it work?

Carbon trading is a market-based system where countries or businesses can trade carbon allowances to reduce their greenhouse gas emissions. Under this system, a cap is set on the total amount of emissions allowed, and organizations can buy or sell their allocated emissions units based on their needs.

How does carbon trading differ from voluntary carbon offsets?

Voluntary carbon offsets allow consumers to choose to balance out their carbon footprint by funding projects like reforestation. Carbon trading, on the other hand, is a legally binding scheme that caps total emissions and allows trading of emission allowances.

What is the significance of the 'cap' in cap-and-trade systems?

The 'cap' refers to the maximum limit of greenhouse gas emissions set by governments or policymakers. This cap is designed to meet environmental targets and limit the damage caused by pollution.

How is the price of carbon determined in a carbon trading system?

The price of carbon is determined by supply and demand within the market. When the supply of carbon units is capped, the price fluctuates based on the availability of alternatives to polluting, with the cost rising or falling accordingly.

What challenges have been faced in implementing carbon trading globally?

Challenges include corruption, abuse of the system, and an oversupply of carbon allowances during economic downturns. For example, the collapse of the carbon market under the Kyoto Protocol was linked to widespread abuse.

Which regions currently have active carbon trading markets?

Active carbon trading markets exist in the European Union, Canada, Japan, New Zealand, South Korea, Switzerland, the United States, and most recently, China, which launched the world’s largest market for its thermal power industry in 2021.

What is the purpose of the European Union’s 'market stability reserve' (MSR)?

The MSR was created to stabilize the price of carbon allowances by adjusting their supply in response to market fluctuations. It aims to prevent oversupply, which reduces the financial incentive for businesses to reduce emissions.

Why do some environmentalists support carbon trading?

Many environmentalists believe carbon trading is a relatively efficient way to reduce emissions, as it assigns a price to pollution and provides financial incentives for companies to find cost-effective alternatives to emitting greenhouse gases.

What concerns exist about carbon trading systems?

Critics worry that countries facing economic difficulties might cheat by setting generous emissions caps or using accounting tricks. There are also concerns about polluters relocating to countries with more lenient regulations and the risk that carbon trading distracts from the need to transition away from fossil fuels entirely.

How has carbon trading impacted emissions in the European Union?

The EU’s carbon trading system has led to a significant reduction in emissions, with the energy sector shifting from coal to natural gas power stations, which produce less CO2. In 2019, emissions fell by 8.7%, the largest decline since 2009.