International Emissions Trading Association

The International Emissions Trading Association (IETA) supports the objectives of the United Nations Framework on Climate Change. On its website, it states that it is dedicated to climate protection, “the establishment of effective market based trading systems for greenhouse gas emissions by businesses that are demonstrably fair, open, efficient, accountable and consistent across national boundaries, and maintaining societal equity and environmental integrity while establishing these systems.” . In its objectives it states that it aims to establish “The Clean Development Mechanism” and “Joint Implementation and emissions trading”. This is the development of a cross borders, global greenhouse gas market which involves flexible mechanisms and systems, supposedly ensuring effective business participation. It aims to be “the premier voice for the business community on emissions trading”. As part of its remit it hopes to provide the latest information on emissions trading, participate in the design of and implementation of international rules and guidelines, and promote the emissions trading system as a solution to climate change.

In order to achieve these objectives, the IETA states that it aims to focus on key areas. The first area is the development of the Greenhouse Gas market and trading systems. The second is to promote market mechanisms, and participation within those markets. Lastly they aim to develop of a Global Greenhouse Gas market.

In order to achieve these goals, the IETA has established a number of working groups, workshops and seminars. These have looked at topics such as trade agreements, taxation and accounting. It acknowledges the need to promote market mechanisms and trading, selling it as a viable solution to minimise social impact within sustainable development. In doing this, it fully cooperates with the World Business Council for Sustainable Development (WBCSD) and the World Economic Forum (WEF) .

About Emissions Trading

The system advocated by the IETA “restricts the aggregate allowable amount of pollutant and allows market forces to continually move the allowed emissions to the highest value uses” .

In this system of market transactions, the main driving force is the relative prices of emission reduction opportunities among participants. An example of this can be seen in a company having a low cost solution to reducing its own emissions, it will not use up its own emissions allocation, it can then sell the unnecessary allocation to another company, supposedly one which is struggling to meet its own allocation. As the IETA states, “Many different forms of trading have evolved. However, the underlying theme is to provide entities with the flexibility to determine the most economic means to reduce emissions. The diversity of trading markets is primarily a consequence of the products traded and the scope of the market” .

Here, Greenhouse gas reductions are seen as a commodity which can be traded. Reductions may refer to actual emission reduction, avoiding emissions, or creation of “carbon sinks” (eg sequestration). The IETA stresses that greenhouse gas reduction is NOT an emissions credit, and that no such system exists today. Greenhouse Gas trading is very similar to other trading markets, although the IETA admits that the rules governing what exactly constitutes an emission reduction are still in development. “Buyers of emission reductions are, in effect, making investments in existing or proposed projects and businesses that are expected to result emissions reductions, in the anticipation that these reductions will someday be eligible for credit by the appropriate international and/or domestic legislative bodies”. Transactions within the market range from simple purchases and sales, to more complicated structured transactions. These include Immediate settlement (straight forward sale or purchase with immediate payment), Forward settlement (reductions and payment deferred to a future date), and Options (this allows the buyer to lock the right to purchase reductions at a future date at a specified price, or the seller to lock in a set future price.. “The IETA’s membership is currently 181 companies out of which 51% represent project developers, intermediaries, financial institutions, brokers, verifiers, legal firms, and others engaged in new economic activity as a result of the GHG market. The balance of 49% represents industrial organisations”. In 2005, the European Union established the European Emissions Trading Scheme , based on EU directive 2003/87/EC , it is the largest multi-country, multi-sector Greenhouse Gas emission trading scheme world- wide, the scheme is mandatory for all EU member states.

Principles for a post 2012 International Climate Change Agreement

In a document with the above title , the IETA outlines its positions and views on a new agreement to replace the Kyoto protocol, which it will advocate during COP-15. “These positions explicate how the agreement could best draw in private sector participation and capitalise upon the strengths of the private sector in addressing climate change efficiently and effectively” . In this document, the IETA outlines various issues, including its goals and targets, commitment to a period duration for the new agreement, new forms of commitment, flexible mechanisms, and Carbon Market Design. Here, the IETA states that it “believes that the parties should agree firm targets for the next commitment period; indicative medium term (~2030) targets that lay out a series of ‘rolling targets’ for subsequent commitment periods; and long term (~2050) global goals”. The IETA advocates the choice of commitment periods of eight years, this is so that long term investment is possible, it also advocates flexibility in order to tie in targets with scientific or political developments. It is also argued here, that any changes to differentiation among the parties (eg. new countries being included) MUST be guided by clear criteria made explicit in the new agreement, new forms of commitment such as ‘sectoral targets’ be agreed after careful consideration. Flexible mechanisms are argued for, with the IETA supporting continued operation, reform and expansion of the Kyoto Protocol’s flexible mechanisms, essentially emissions trading, the Clean Development Mechanism, and Joint Implementation. “The IETA supports the development of new flexible mechanisms to further encourage critical private sector investments in the areas of emission reduction, and technology development and deployment”. It is also suggested that the decisions made by the parties when replacing Kyoto MUST work alongside decisions made by national and regional governments, and that ambition levels and the extent and nature of regulation will prove critical to the success of the proposed market.