With global warming on the rise, chances for ecosystems to adapt naturally are diminishing, making climate change one of the greatest threats facing the earth. At the 1992 Earth Summit, most of the world’s countries joined an international treaty – the United Nations Framework Convention on Climate Change (UNFCCC) – to consider the options for reducing global warming. More recently, a number of countries ratified an addition to the UNFCCC – the Kyoto Protocol – with more powerful and legally binding measures.

Emissions trading is one of the mechanisms under the Kyoto Protocol that is designed to help countries cut the cost of meeting their emissions targets. This tutorial throws light on the regulatory background for emissions trading, the reduction targets, and trading mechanisms specified under the Protocol. It covers the EU Emissions Trading scheme and its trading practices in detail. The tutorial also focuses on the factors that determine the price of carbon, and looks at some of the emissions markets that have been set up across the globe.

Objectives
On completion you should be able to:

• Describe the regulatory background for emissions trading, particularly the UNFCCC and the Kyoto Protocol
• Describe the workings of the emissions trading system in the European Union (EU ETS)
• Explain the key factors influencing the price of carbon
• List some of the different markets where emissions trading takes place