The overwhelming majority of scientists have concluded that global warming is unequivocal. The Intergovernmental Panel on Climate Change (IPCC) fifth report in 2013 concluded that the challenge of climate disruption to human beings is even more imperative than the previous report claimed, and that anthropogenic greenhouse gases (GHGs) emissions have extremely likely been the dominant causes of the observed global warming since the mid-20th century.
Anthropogenic GHGs emissions have many implications, including more intensive, extreme meteorological events, spreading of diseases, and threatening human health and life. Climate change also causes injustice in human society because of the dislocation of the consequences from it in time and space for the affected people. As a response, a variety of policies and laws have been initiated from regions and nations. Among them, economic incentive instruments are employed to combat global warming, including a carbon emission trading system (ETS) and a carbon tax.
Carbon emission trading as a market means has its advantages, such as political feasibility and certainty for environmental benefits. Its volatility of carbon price could be avoided by a proper design, for instance, a price containment mechanism. In contrast, a carbon tax is less politically feasible and also may have an effect on trade and market distortion, such as border and tariff adjustments (BATS).
Allowing parties to buy CERs from CDM and Reduced Emissions from Deforestation and forest Degradation (REDD+) projects will be conducive to carbon emissions reduction.
The European Union Emission Trading System (EU ETS) is the largest and most successful market based system in the world. The lessons learned in its development, detailed in the body of this thesis, set invaluable examples from which other market based systems can greatly benefit.
The Regional GHG Initiative (RGGI), the first mandated cap-and-trade program for GHGs, is another pioneer cap and trade program herein discussed in depth. It is a regional program of Northeastern U.S. states. RGGI is regarded as an effective and efficient system. It successfully decoupled economic growth and the reduction of carbon emissions. RGGI states surpassed other states in economic growth and the decline of carbon emissions simultaneously.
RGGI‘s challenges and shortcomings are also documented. Thus RGGI encountered carbon leakages through importing electricity from non-RGGI states. The Cost Containment Reserve also needed improvement. When reserve allowances were sold, additional emissions tended to inflate the original cap. To avoid this scenario, some portion of allowances needed to be held back in the allowance reserve.
Another pioneer U.S. cap and trade initiative, The Western Climate Action Initiative, is a unique multi-jurisdictional program among western U.S. states and Canadian provinces. In one element of it, California and Quebec have created the first international cap-and-trade system of sub-national jurisdictions. It is the most ambitious program in North America, but it encountered difficulties from the dramatic change in the political landscape accompanying the 2008 economic crisis and the change in U.S. administrations.
The emission trading systems of a number of other nations that are experimenting with emission trading systems are also covered in depth, including the Korea Emission Trading System begun in South Korea in 2015 and the Tokyo Metropolitan Government cap-and-trade program which was the first mandatory ETS in Japan, begun in 2010.
The China approaches to these issues and their prospects are a major focus of this study. China officially launched seven state pilot ETS programs starting in 2013 and plans to initiate a national ETS this year in 2017. The many accumulated experiences from the pilot programs include such findings as the importance of setting realistic targets balancing the needs for carbon reductions with those of economic growth and pollution control and the need for legislation specifying the actions to be taken, provisions for disclosure, allowance allocations, offsets, infrastructure building, monitoring reporting and verification, and adoption of a compliance mechanism. Deficiencies in the pilot programs are evaluated, such as those derived from lack of a national legal basis and unified rules for the carbon market, an excess of free allocation of allowances, a lack of liquidity of the market, lenient punishment for non-compliance, and absence of a sound monitoring and regulatory mechanism.
The requisites for sound market based programs are described, with particular emphasis on the need for a comprehensive legal basis on which programs can be built.
The pluses and minuses of cap and trade market based programs versus carbon taxes are explored in depth, including the possibilities of combining the two systems. Various bottom up and top down approaches are explored and the key elements of success and failure.
From the perspective of international cooperation under the Paris Agreement in the long run, it is concluded that it is necessary to identify a formula to link the domestic carbon markets to those in other jurisdictions. A multi-lateral club approach is suggested. The role of the judicial branch in carbon emission reduction is explored with several recent relevant cases described.
Conclusions of the study seek to identify what alternative systems of carbon emission controls are being applied throughout the world, what lessons can be learned from them, and what are the important elements needed for successful programs.
Mingde Cao, A Comparative Study on Carbon Emission Reduction Systems (Nov. 2017) (SJD dissertation, Elisabeth Haub School of Law at Pace University), http://digitalcommons.pace.edu/lawdissertations/23/.