The greenhouse gas emissions market: what it is and how it works

The EU ETS is the main European system used in the fight against climate change and in the reduction of greenhouse gas emissions:  it is present in 31 different countries and has the ability to reduce the harmful effects caused by over ten thousand high energy consumption installations and airlines.

While its functioning is based on the concepts of limitation and exchange of emissions, in practice it is a way of establishing the maximum amount of gases which can be produced by installations within the system itself (a limit which gradually becomes lower in order to reduce the levels of harmful substances). The gases monitored are:

• Carbon dioxide;
• Nitrogen oxide;
• And perfluorocarbons.

Considering the huge quantities mentioned above, companies subsequently obtain and buy emission quotas which can be exchanged. Other options open to the companies include buying international credits from world programmes aimed at reducing gases.

Every 12 months the companies have to reach a number of quotas sufficient to sustain the levels of emissions produced: in reality those companies which lower these levels often either sell the leftover quotas to those who need them or use them in successive years.

The price of the quotas depends above all on market fluctuations (and therefore, on the relationship between supply and demand), but also on other factors relating to economic, environmental and political considerations.

Specific platforms exist where quotas can be exchanged: these are private schemes which allow users to carry out research and negotiations and are not linked to any national Register.

Despite this however, every transaction that takes place in such systems is entered into a Register, which certifies its compliance with emission laws.  In Italy, the first platform for greenhouse gas Emissions Quotas was set up by the GME.

Just recently China presented its platform for the buying and selling of emissions: a very important project, which is aiming to overtake and make its mark on the European ETS.

In fact, that organisation has so far not succeeded in its intention to set a price for CO2 emissions which can lead to a reduction. The cause of this failure has been due above all to a series of bad decisions taken at a political level.

The new Chinese system will govern the field of energy production exclusively. This is currently the source of over 45% of the carbon dioxide emissions of that entire nation.

Although in recent years the USA has shown little interest in problems concerning climate change, the EU has expressed its enthusiasm and approval towards China, as a result of the realisation that it has found a valuable ally.

According to the Commissioner for Climate and Energy Miguel Arias Canete, it is a coalition like this which could encourage more and more countries to join together for the future wellbeing of a planet which has been forced to suffer the consequences of man’s actions for too long.

Of course, the problem of emissions is a controversial one, which must be dealt with according to strict procedures. Without a focused strategy and the collaboration of major world powers, the risk is that an already difficult situation will be made even worse.

The hope is definitely that the ETS will start to reflect more carefully before taking decisions and that the Chinese project will stimulate education and awareness, not only among governments but also among businesses and the population as a whole.

Translated by Joanne Beckwith