WHERE DO WE GO FROM HERE? EMISSIONS TRADING UNDER THE KYOTO PROTOCOL
Michael Jeffery QC*
With the collapse of the Sixth Conference of the Parties to the United Nations Framework Convention on Climate Change (‘COP 6’) in The Hague in November of last year, followed shortly thereafter by the election of George W Bush as President of the United States (‘US’) and his subsequent repudiation of the Kyoto Protocol to the United Nations Framework Convention on Climate Change (‘Kyoto Protocol’)1 in March of 2001, the prospect of a flourishing global market for emissions trading under the provisions of the Kyoto Protocol suffered a significant setback.
Amid the debris, however, there is a growing number of pragmatists, this writer included, who are not yet ready to abandon hope for a concerted and focused international response to the threat posed by global warming. Notwithstanding the US Government’s position, it appears certain that emissions trading will continue to develop and expand in some form as the business and industrial sectors seek more cost-effective ways of reducing greenhouse gas emissions in the years ahead.
The purpose of this short paper is, therefore, to examine the efficacy of emissions trading and its use as a market-based mechanism – it is one of the three ‘flexibility mechanisms’ set out in the Kyoto Protocol – and to consider how an effective emissions trading regime might be developed in the event that the Kyoto Protocol is never ratified, a distinct possibility in the wake of apparent US intransigence on the part of both the Bush Administration and the Republican-controlled Congress.
In the last few years there has been a relatively rapid increase in the number of jurisdictions incorporating some form of emissions trading as part of a domestic regulatory regime for the purpose of facilitating the achievement of a particular environmental objective. This leads one to believe that this type of approach will continue to gain favour, whether or not the comprehensive global trading regime envisaged under the Kyoto Protocol is realised. As a starting point, it should be noted that market-based incentives in general and emissions trading in particular, evolved long before the events leading up to the signing of the Kyoto Protocol in 1997 and there is now considerable evidence to suggest that such mechanisms will continue to form an increasingly important component of most environmental regulatory regimes at the domestic, regional, or international level.