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:

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

RegionNameDatesCoverageNature
United Kingdom UK Emissions Trading Scheme 2002-2006 (closed) Any sector Voluntary
United Kingdom Carbon Reduction Commitment TBA Non-energy intensive business and public sector entities with electricity consumption above a threshold level Mandatory
Australia Carbon Pollution Reduction Scheme 2011 start Direct emissions from large facilities and upstream fuel. Initially excludes agriculture and land use Mandatory
New South Wales Greenhouse Gas Abatement Scheme 2003-present Electricity Generation Mandatory
Europe EU Emissions Trading Scheme 2005-2007(Phase I) 2008-2012(Phase II) Energy generation, refineries, ferrous metals, minerals, pulp, paper and others Mandatory
Worldwide Kyoto Protocol 'flexible mechanisms' Entered into force 2005, first commitment period 2008-2012 All sectors except international aviation and shipping Mandatory for developed countries, voluntary for developing countries
Japan Japanese Voluntary Emissions Trading Scheme 2006-present Food, drink, buildings, textiles, pulp, paper, metals, and ceramics Voluntary
Norway Emissions Trading Scheme 2005-2007 (Phase I) 2008-2012 (Phase II) Large direct emitters, linkage to EU ETS in 2008 Mandatory
New Zealand Emissions Trading Scheme was 2008 start, has been postponed Forestry initially, all sectors by 2013 Mandatory
Switzerland National Emissions Trading System 2008-2012 Large direct emitters expected to participate Voluntary
North East USA Regional Greenhouse Gas Initiative 2009 start Fossil fuel electricity generation above 25 MW, burning >50% fossil fuel Mandatory
California TBA under Assembly Bill 32 2012 start TBA Mandatory
Western USA Western Climate Initiative TBA TBA Mandatory
United States TBA under Lieberman-Warner Bill 2012 start TBA Mandatory
United States Chicago Climate Exchange 2005-2007 (Phase I) 2008-2012 (Phase II) Any sector Voluntary