FAQ

Global Warming, or Climate Change is caused by manmade greenhouse gases collecting in the atmosphere and trapping heat around the earth. These gases come mainly from burning fossil fuels (which emit carbon dioxide). Other gases such as methane and hydro fluorocarbons are also greenhouse gases.

Some greenhouse gases occur naturally in nature, for example methane from decaying organic matter. The earth's vegetation and oceans absorb carbon dioxide.

Scientists believe we are at a "tippling point' where we have exceeded the earth's ability to absorb the levels of greenhouse gases and, of equal importance, the point where each further increase of greenhouse gas concentration will lead to an accelerating rate of global warning.

The EPA web site does a good job of explaining the major sources of greenhouse gases.

Very simple. We need to emit fewer greenhouse gases and have more natural "sinks" like forests.

The challenge is how to do this in the most expedient way.

Possibilities include:

• Putting a direct tax on emissions. For example, in the UK cars are taxed on their "Dirtiness", or their Carbon Dioxide emissions.
• Introducing mandatory standards of efficiency. Examples include Building Standards for insulation and efficient appliances.
• Legislation on emissions. In the US, all landfills over a certain size have to by law capture the methane emissions from the decaying organic matter.
• A Cap and Trade system

Most National/State plans to combat Climate change use a mix of all the above.

Cap and Trade works by implementing caps on emitters of greenhouse gases. Each year, the emitter is given a cap which can be met in two ways. It can either reduce emissions at the facility under the cap, or alternatively buy Carbon Offsets through the Carbon Markets. Under Cap and Trade systems, the emitter has to show at the end of each compliance period it has reaching its cap by one or both of the methods outlined above. Failure to do so typically results in a fine.

Some people feel Cap and Trade legislation is merely a complex tax on Carbon emissions. Supporters of Cap and Trade argue it enables the market to find the cheapest forms of carbon abatement whereas a tax relies on the Government to allocate funds. There is a real concern the temptation to put it in some other pot such as Healthcare would be irresistible.

These markets exist due to Cap and Trade legislation. Entities such as power stations and industrial facilities have their carbon emissions capped and buy Carbon Offsets because they have to.

Buyers in this segment buy Carbon Offsets because they want to. They are not compelled to. These buyers fall into two camps. Firstly, individuals can purchase offsets to offset their Carbon Footprints. A number of websites have both tools to calculate Carbon Footprints and to buy offsets on line. Secondly, corporations, NGOS, and government departments buy Carbon Offsets to enable them to claim "Carbon Neutrality", as a marketing/PR exercise. The number of institutions doing this has increased substantially in the last two years. This is not an inconsiderable commitment for these institutions to make. They will have to purchase Carbon Offsets each and every year they wish to claim Carbon Neutrality.

Carbon Offsets. These are best considered as shares in a project which could be hosted anywhere in the world, and in some way reduces carbon emissions. Carbon Offsets exist in both the Compliance and Voluntary Markets.

Carbon Allowances. These exist only in Compliance Markets. Under Cap and Trade, governing authorities allocate Allowances to the capped entities that permit them to emit carbon up to a figure below their cap. Each capped entity has to provide annually enough Allowances and Offsets to cover their actual emissions.

Offsets and Allowances are measured in Tons of Carbon Dioxide equivalent, or TCO2e for short.

Standards have evolved for Carbon Offsets. Voluntary buyers and Governing bodies (Compliance Markets) need assurance that the Offset meets certain quality requirements, namely "Additionality".

Unfortunately there is no Global Standard for Carbon Offsets. Standards have evolved to increase the quality Offsets. Since these Offsets are traded for real money, their Quality is important to Voluntary buyers as they want to ensure that theirs $s are indeed helping the planet, and also in the Compliance market as the governing authorities need to be able to demonstrate that offsets are Additional.

You will see this term a lot. A Carbon Offset is only helping the planet if it occurred as a result of the Carbon Markets. If the Offset were to occur anyway, it cannot be considered Additional. This simple concept is responsible for much of the complexity in the carbon market.

A measure of how much Carbon Dioxide an entity emits.

1. It is true that the world undergoes cyclical weather changes. What appears to be different now is the considerable increase in concentrations of carbon dioxide in our atmosphere. This started during the Industrial Revolution and has begun to increase at an accelerating pace in the last couple of decades.
2. It is now believed we are at a tipping point where a small further increase in the concentration of Carbon Dioxide will lead to a disproportionate increase in Global warming.
3. There is no argument things are warming up. Given the weight of scientific evidence and the potential damage that further temperature increases will cause, it is time to get serious.

Effectively yes. However, the number of allowances will be less than the "Business and Usual" (BAU) emissions, forcing the entity to abate locally or invest through the Carbon Markets in a Carbon Offset Project. The Cap and Trade approach does not intend to fix the problem overnight. Over a period of time, the declining cap will force the markets to find solutions through renewable energies, end use efficiency improvements and carbon dioxide sinks, etc.

Global Carbon concentrations will be affected by reducing Carbon Dioxide emissions anywhere in the world. This is different to river pollution where cleaning up the Loire in Paris, France does not help the river Ohio in the USA. Replacing a Fossil Fuel Power station with a Wind Power station clearly is a step in the right direction. The leap in logic is how the Carbon Offsets helped this transition.

If it can be demonstrated that this Wind Power station was only made possible because of the income stream from Carbon Offsets (The project was Additional), then through investing in Carbon Offsets you can rightly claim to have offset your carbon footprint.

It is perhaps unfortunate that George W Bush will be remembered for his statement in 2001 that "Kyoto will be bad for the US economy". There were equal, if not larger concerns at the time that a Cap and Trade agreement excluding emission caps on China, India would be less than successful. This is true as opportunities for leakage (relocating dirty processes to uncapped areas of the world) reduce as more areas get capped.

It is interesting to note that Europe, whose member states ratified Kyoto and implemented the EUETS appears to have few, if any ill effects from introducing a Cap and Trade system effecting 50% of their manmade emissions.

Subsequent attempts to bring the US into the Kyoto discussions, including the Bali summit in 2007 centered (inconclusively) on the emerging countries commitments and it will be interesting to see what transpires at the Copenhagen summit scheduled for 2009.

So, was Bush right?

China's Carbon Dioxide emissions are approximately 80% of the US (2004 figures). However, China's emissions have grown by 110% since 1990 whereas US growth has been closer to 20%. At present trends China will become the world's largest greenhouse gas source in the next few years.

Bush was right in his assertion that China needs to get on board. However, seven years on, China is still not under any from of cap and the US has an ever increasing complex regulatory environment as regional Cap and Trade initiatives (RGGI, WCI, MGGA) spring up to fill the void.

Options of putting an imputed tax on imported goods from countries that have not adopted a cap have been discussed on Capital Hill when debating a US wide Cap and Trade Bill.

We will have to wait for the next US administration to see whether the US adopts a Cap and Trade scheme. The idea is supported by both President Obama and Senator McCain.