Today, we will delve into the Greenhouse Gas Emissions Trading Scheme, a crucial aspect of climate change mitigation. Many of you may have heard this term, but let's examine what it exactly entails and how it affects our daily lives.

The Relationship Between Climate Change and Greenhouse Gas Emissions

Before we explore the Greenhouse Gas Emissions Trading Scheme, it's essential to understand the link between climate change and greenhouse gas emissions.

Climate change is the long-term shift in global average temperature.

This is also known as global warming and arises from various factors. The primary cause is Greenhouse gas emissions stemming from human activities.These gases reside in the atmosphere and play a vital role in maintaining Earth's temperature. However, increased greenhouse gas concentration due to human actions leads to excessive global temperature rise, ultimately contributing to climate change.

Greenhouse gases include carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O).

• Examples of significant greenhouse gases include carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O).

Since the Industrial Revolution, population growth and industrial development have drastically increased greenhouse gas emissions. Consequently, global temperatures have been steadily rising, accelerating climate change. This phenomenon significantly impacts the Earth's ecosystem and threatens human survival. The international community is actively pursuing various efforts to reduce greenhouse gas emissions.

Fundamental Principles of the Greenhouse Gas Emissions Trading Scheme

The Greenhouse Gas Emissions Trading Scheme is a mechanism that leverages market forces to effectively reduce greenhouse gas emissions.

The basic principles are as follows:

Each country or enterprise sets a permitted level for greenhouse gas emissions. In this process, each entity receives an allocated amount of greenhouse gas emissions they can emit. Should they wish to emit more than their allocated quota, they must purchase emission permits from other entities. Conversely, if an entity emits less than their allocated quota, they can sell their remaining permits to others.

This approach reinforces accountability for greenhouse gas emissions and encourages voluntary reduction. Moreover, as trading occurs, a price is established, influencing market participants' decisions regarding greenhouse gas reduction. In essence, it allows entities to make informed choices by weighing the costs and benefits of emissions reduction.

The Emissions Trading Scheme is already implemented in numerous countries, with governments setting annual national greenhouse gas reduction targets and operating Emissions Trading Schemes to achieve them.

Global Adoption of Greenhouse Gas Emissions Trading Schemes

The Greenhouse Gas Emissions Trading Scheme is being adopted globally as part of international efforts to address climate change. Currently (as of 2023), over 60 countries have either implemented or are planning to implement national-level Emissions Trading Schemes. Regionally, it is operational in more than 10 areas, including the European Union (EU) and California, USA.

The European Union (EU)has been implementing the Emissions Trading Scheme for its member states since 2005. It is the world's largest and longest-running scheme. The EU aims to reduce greenhouse gas emissions by 40% compared to 1990 levels by 2020, with ongoing efforts to revise this target to 55% reduction by 2030.

The United Statesoperates Emissions Trading Schemes at the state level. Notably, California introduced the first such scheme in the U.S. in 2006. Other states like New York, New Jersey, and Massachusetts have also implemented Emissions Trading Schemes. The federal government is considering the adoption of a similar system.

Chinahas been implementing a nationwide Emissions Trading Scheme since 2017. Pilot programs were conducted in seven regions, including Beijing, Shanghai, and Shenzhen, leading to the implementation of regional Emissions Trading Schemes in 2013.

Japanhas been implementing Emissions Trading Schemes in certain regions, such as Tokyo and Osaka, since 2013. It is expected to launch a national-level scheme in 2023.

Economic Impact of the Greenhouse Gas Emissions Trading Scheme

The Emissions Trading Scheme incentivizes voluntary participation by imposing greenhouse gas reduction obligations on businesses while providing economic incentives.

• Companies can reduce costs by purchasing emissions permits or selling excess permits, which can enhance their competitiveness.
• The emergence of a financial market driven by fluctuating emissions permit prices is also anticipated. As the emissions permit trading market becomes more active, the likelihood of derivative products like emissions permit futures and options increases, potentially contributing to the growth of the financial sector.

However, it also has potential downsides.

• Rising emissions permit prices can increase production costs for companies, potentially leading to inflation.
• Issues such as speculative trading due to under-allocation or regulatory failures can arise.

To minimize these effects, meticulous policy design by governments is crucial.By establishing appropriate emissions permit allocations and implementing market stabilization measures, it's possible to reduce the burden on businesses while achieving greenhouse gas reduction targets.

Impact of the Greenhouse Gas Emissions Trading Scheme on Businesses

The Greenhouse Gas Emissions Trading Scheme restricts the emissions of businesses and allows them to trade emissions permits.

This can significantly influence business strategies.

• The Emissions Trading Scheme can increase costs for companies. This is because they may need to purchase emission permits or invest in additional facilities to reduce emissions. These expenses can impact profitability, necessitating adequate preparations for the scheme by businesses.
• It can also present opportunities. By reducing emissions, companies can proactively address environmental regulations, enhancing their image and gaining customer trust. They can also generate new revenue streams through emissions permit trading.

Especially in countries with a high proportion of export-oriented manufacturing, efforts such as developing greenhouse gas reduction technologies and formulating emissions trading strategies are necessary to maintain international competitiveness.These measures are essential to stay ahead in the global market.

Advantages and Disadvantages of the Greenhouse Gas Emissions Trading Scheme

The benefits of the Emissions Trading Scheme are as follows:

• It leverages market forces to reduce the costs of greenhouse gas emission reduction. In essence, businesses can purchase emission permits instead of directly reducing emissions, opting for the most cost-effective approach.
• It provides more flexibility than direct regulation. It allows for adaptability to unforeseen circumstances such as economic fluctuations or new/expanded production facilities.
• It facilitates achieving national greenhouse gas reduction targets effectively through integration with the global carbon market. The European Union (EU), the United States, China, and Japan are among the nations that have implemented or are planning to implement Emissions Trading Schemes. Connecting these international carbon markets can contribute to global greenhouse gas reduction efforts.

However, there are drawbacks:

• The scheme's vulnerability to emissions permit price fluctuations creates uncertainty. This can increase business risks.
• It could encourage moral hazard among some companies. They may engage in illegal emission activities or manipulate emission measurement methods, exploiting lax regulations.

Successful Implementation of the Greenhouse Gas Emissions Trading Scheme

Numerous countries have reported successful implementation of the Emissions Trading Scheme. A prime example is the European Union Emissions Trading Scheme (EU ETS).This scheme has been in operation since 2005, encompassing over 15,000 companies within the EU. Since its introduction, greenhouse gas emissions in the EU have been consistently decreasing, with a notable 7% reduction in emissions in 2020 despite the economic challenges posed by the COVID-19 pandemic.

This success can be attributed to the EU's active pursuit of various climate change mitigation policies, including the Emissions Trading Scheme.

Let's all strive for a better future by working together to protect the environment!