The study, Act Locally, Trade Globally: Emissions Trading for Climate Policy, conducted by Richard Baron and Cédric Philibert, two economists at the IEA, foresees a yearly demand of roughly 1 billion tonnes of CO₂-equivalent from industrialized Kyoto parties, unless climate policies are strengthened.

The authors determine that among the Kyoto Protocol trading mechanisms, the Clean Development Mechanism (CDM) could fulfil 10% of this demand with reductions from projects in developing countries. Economies in transition, notably Russia and Ukraine, should hold enough emission allowances to provide the rest, but ability to sell and willingness to buy remain to be confirmed.

To strengthen and expand emissions trading systems, both to other sectors in Kyoto Protocol’s industrialized countries and to new countries, the authors suggest a variety of mechanisms, including the allocation of emissions liabilities to fossil fuel producers or importers (an upstream system) or to automakers. They also touch on the expansion of emissions trading to the aviation sector, a policy currently on the table in the EU. (Earlier post.)

There has to be a way to signal to car owners the environmental cost from driving. Secondly, we would force car companies to build better cars.

—Richard Baron (Bloomberg)

The study also suggests growth-indexed targets, “non-binding” emission targets and price caps as options for future international emissions trading. Sectoral targets are also considered in some details as first steps.

(A hat-tip to Bob Oliver!)

Resources:

• Act Locally, Trade Globally: Emissions Trading for Climate Policy

• Executive Summary