Regulations & Resources

What is the role of emissions trading?

clock 5 minute read

Emissions-trading programs limit the carbon that companies can release. By imposing a cap on emissions and allowing companies to buy and sell their unused allowances, such programs put a price on carbon and incentivize the move toward clean energy.

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The Paris Agreement authorizes countries to trade emissions internationally

  • The European Union has maintained an emissions-trading program since 2005. The program covers emissions from about 10,000 installations in the energy and manufacturing industries, as well as airlines operating between EU countries. In July 2021, the European Commission (the EU’s administrative body) proposed an expansion of the program as part of its effort to reduce greenhouse gas emissions by 55% (from 1990 levels) by 2030.
  • China, the world’s largest emitter of greenhouse gases, opened a nationwide emissions-trading program in July 2021. The voluntary program, which China first proposed in 2015, covers roughly 2,000 power plants and will be the largest carbon market in the world by volume. China has pledged to reach net-zero emissions nationwide by 2060.
  • South Korea has run a mandatory emissions-trading program since 2015. The program, now in its third phase, covers 685 of the country’s largest emitters and encompasses nearly 74% of its greenhouse gas emissions.
  • New Zealand operates an emissions-trading program that covers just over half the country’s greenhouse gas emissions. The program encompasses seven sectors; all but agriculture, which accounted for 48% of the program’s emissions in 2017, are required to buy and surrender to the government one “New Zealand Unit” of emissions for every ton of CO2-equivalent emissions they produce.
  • California runs an emissions-trading program that covers roughly 80% of the state’s greenhouse gas emissions. The state’s air resources board creates allowances equal to the total amount of permissible emissions, which the board lowers each year.

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The Taskforce on Scaling Voluntary Carbon Markets. The latest recommendations from an initiative launched by Mark Carney, the U.N. special envoy on climate action and finance, for creating a scaled, high-integrity voluntary market for the trading of carbon credits 

China launches world’s largest carbon market: but is it ambitious enough? Experts welcome the trading scheme but say it may not go far enough to help China achieve its national goal of reducing emissions to net-zero by 2060 (Nature).