Principles of emissions trading
Emissions trading
One of the flexible mechanisms under the Kyoto Protocol is the trading of emissions allowances,
which are recorded in this registry. Companies that emit greenhouse gases receive a limited number
of emissions allowances from the competent authority (in Austria the Federal Ministry of
Agriculture, Forestry, Environment and Water Management). If a company emits more greenhouse gas
emissions than it has been allocated allowances, it may purchase allowances from other companies.
Allowances are traded via traders (e.g. banks), at an exchange or directly between companies. From
2008 onwards when international emissions trading under the Kyoto Protocol will start, Kyoto units
will be traded also between countries and not only directly between companies. In addition to EU
allowances (EUAs), which have been traded since 2005, different types of Kyoto units will circulate
on the market.
Emissions trading under the Kyoto Protocol
The inclusion of emissions trading in the Kyoto Protocol is based
on an initiative of the USA. In the 1990s, the USA demonstrated with a programme to combat acid
rain that a market-based instrument such as emissions trading can work. With the Acid Rain Program
sulphur dioxide emissions were reduced without great expense within a short period of time.
What are the advantages of emissions trading as a policy tool?
A basic condition for emission trading to work is that emitters have to be allocated only a limited
number of allowances for a certain activity. If they are able to trade these allowances, emission
reductions are usually achieved in installations where this is possible at the lowest cost.
Operators who could achieve reductions in their own installations only at great expense, will
prefer to purchase additional allowances. Thus the costs of the emissions reduction will be roughly
the same for everybody and at the lowest possible level because trading will balance the costs
between individual operators.
Which percentage of greenhouse gases is covered by emissions trading in Austria?
Emissions trading currently only covers emitters of greenhouse
gases which operate in specific sectors (see also operators) as stipulated in the Austrian Act on
Emissions Allowance Trading (Emissionszertifikategesetz – EZG). In 2006, these emitters were
responsible for 36% of the total emissions in Austria. With large number of small emitters, other
sectors also contribute to the greenhouse effect. In Austria, these sectors include e.g. transport
with a share of 26 %, space heating with 16 %, agriculture with 9 %, waste management with 2 % and
emissions of fluorinated gases with
2 % (as of 2006). For these sectors additional measures are currently being implemented or
developed.
