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Regulatory Landscapes

The Kyoto Protocol is currently the strongest binding global action plan on global warming. The protocol establishes legally binding greenhouse gas (GHG) emission targets for countries.

The Protocol includes flexibility mechanisms to help countries meet their emission reduction targets.

Firstly, Parties with commitments have accepted targets for limiting emissions. These targets are expressed as levels of allowed emissions over the 2008-2012 commitment period. The allowed emissions are divided into "assigned amount units" (AAUs). Emissions trading allows countries that have emission units to spare to sell this excess capacity to countries that are over their targets.

The Second of these flexibility mechanisms was the creation of two types of carbon credits available for trading, Certified Emission Reduction carbon credits (CERs) and Emission Reduction Units (ERUs).

The Clean Development Mechanism (CDM) allows a country with an emission-reduction commitment to implement an emission-reduction project in developing countries, and earns CER credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets.

The mechanism known as "joint implementation," allows a country with an emission reduction commitment to earn ERUs from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target.

Besides, many governments are taking steps to reduce GHG emissions through national policies that include the introduction of national emissions trading programs, voluntary programs, carbon or energy taxes, and regulations and standards on energy efficiency and emissions.

Some of these initiatives are:

• The European Union launched its cap and trade EU ETS scheme in 2005;
• Norway's Emissions Trading Scheme is now on its second phase;
• New Zealand Emissions Trading Scheme was to be launched in 2008, has been postponed;
• UK's Carbon Reduction Commitment will take effect in 2010;
• Canada has announced a number of initiatives to take 'Action' on Climate Change;
• Australia has legislated for a Carbon Emissions Trading Scheme with an interim fixed price period until 2015;
• Japan and the U.S. are also debating details of a cap and trade scheme.

As a result, companies must be able to understand and manage their GHG risks if they are to ensure long term success in a competitive business environment, and to be prepared for future national or regional climate policies.

Major existing and proposed emissions trading schemes globally