Legal Issues Presented by a Pilot International Greenhouse Gas Trading System: (Among Countries with Binding Emissions Targets under the FCCC)
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Description
This report examines the legal issues arising from the possibility of establishing a pilot international trading system for greenhouse gas (GHG) emissions among a number of States. States have expressed interest in the possibility of establishing such a system for a variety of reasons. Initial experience with emissions trading systems indicates that such systems can be highly effective in meeting environmental targets at much lower cost than traditional types of regulation provided, as with any system of regulation, that monitoring and enforcement are adequate. Emissions trading systems can also increase transparency because they give sources, sequestration projects and governments a strong incentive to use publicly understandable, standardized methodologies for monitoring and reporting. Furthermore, emissions trading systems provide incentives for the transfer of technology and financial and other resources to projects, sectors and locations which offer the opportunity to reduce net GHG at lowest cost, and for the development of new technologies that reduce net GHG emissions. We recognize, however, that trading systems of the type described in this report would be innovative in international agreements and present novel institutional and administrative issues. The pilot trading system discussed in this report would include trading of energy sector CO₂ emissions, and might also include emissions of HCFCs, HFCs, PFCs and SF₆, all of which are relatively easy to monitor and verify. It would be desirable to include forest-sector CO₂ emissions and sinks, fossil-fuel methane (CH₄) and the tropospheric ozone precursor NOₓ, provided that appropriate assurances of monitory and verification were obtained. Eventually, as monitoring methods improve, the system could be extended to include other GHG emissions, expressed in CO₂ equivalents. The pilot trading system could be designed for an initial 15-20 year period. The report addresses a pilot system among a Group of States which are Members of an international agreement (Agreement). As a pilot programme, the trading system might begin with a relatively small but diverse group of States. Starting with a relatively small number of participants during the negotiation and early implementation of the Agreement will facilitate a successful learning process. Such a system might take one of the two basic forms. Under an Allowance Trading System, the Agreement would establish an overall group net emissions cap, and allocation of net emissions allowances among the Members, and institutional arrangements for trading allowances, monitoring net emissions and imposing sanctions for non-compliance. Under an Emissions Budget System, Members would commit themselves to limiting cumulative emissions during each of several successive multi-year budget periods. A Member’s reductions of emissions below the amount budgeted for a given budget period would generate savings that could be reserved for future use or traded. By way of introduction, it is important to stress two fundamental working assumptions underlying the report. The first assumption is that any international system for trading emissions between two or more States and their sub-national entities would be governed by international law, rather than by the national laws of any particular State. It is most unlikely that a State could accept that its rights or obligations under such arrangements could be governed by the national laws of another State. The second assumption is that any pilot international trading system would be established in accordance with and in the context of the 1992 United Nations Framework Convention on Climate Change (FCCC). The idea that separate arrangements might be adopted may theoretically exist, but Parties to the FCCC are not likely to establish an independent and potentially competing system that would risk undermining the FCCC. Building on these two assumptions, one way of initiating a pilot emissions trading system might be for those FCCC Parties which have committed themselves to quantitative GHG emissions limitations and are interested in participating in such a system to conclude an international Agreement on the system’s structure and operation, in accordance with and in the context of the FCCC. In any event, such an Agreement could not, of course, affect existing obligations under the FCCC. The ‘learning by doing’ experience under a pilot trading system might provide the basis for enlarging the system through the participation of additional Members, as discussed below, and eventual participation of most or all Parties to the FCCC. The precise path by which such a pilot international trading system might evolve into a more permanent and comprehensive system is a matter beyond the scope of this report. It is also possible that certain industries might agree to an industry-wide emissions limitation and trading system independent of, or linked to, the Group trading system analysed in this report. This report discusses the principal legal, institutional, and organizational issues presented and options available for implementing a pilot international GHG trading system. It does not seek to reach firm conclusions as to how to proceed, a matter lying beyond the scope of this report. The remainder of this report is organized as follows Part II outlines the basic element of possible pilot trading systems and the organizational structure needed to establish and support them. Part III explains how the trading systems discussed in this report differ from existing approaches to joint implementation (JI) and activities implemented jointly (AIJ). Part IV analyzes in greater detail a number of key design, organizations, and legal issues that must be resolved in order to implement the trading systems successfully.
Publication Date
1996
Recommended Citation
Stewart, Richard B.; Wiener, Jonathan B.; and Sands, Philippe, "Legal Issues Presented by a Pilot International Greenhouse Gas Trading System: (Among Countries with Binding Emissions Targets under the FCCC)" (1996). Faculty Books & Edited Works. 709.
https://gretchen.law.nyu.edu/fac-books-edited-works/709
