Carbon Trading Set To Be Big Business for Energy and Manufacturing Sectors

Brussels has created a multi-billion dollar industry since the European Union Emission Trading Scheme started charging companies for emitting carbon dioxide back in 2005.
Europe’s effort to combat climate change advanced on Jan. 23 when the EC announced the third phase of the ETS.  This third phase will extend the program to 2020 and sets strict reduction targets for the EU’s energy and manufacturing sectors.  Now industries such as aluminum and chemicals have been added to the ETS, which will cover almost half of Europe’s total emissions.
The goal of the scheme is by 2020 to lower carbon output 20% from its 1990 level.  The scheme will use a market-based mechanism that fixes the problems of earlier schemes and creates a more realistic price for carbon credits.  One method Europe will use this is requiring some companies, beginning in 2013, to purchase carbon emission rights via auction, rather than by receiving them as grants. Among other changes announced Wednesday, a commitment to improve energy efficiency 20% by 2020 and also, a plan to produce 20% of the EU’s energy from renewable sources over the same period.
The controversial idea underlying Europe’s ETS system is known as “cap and trade.” The European Commission assigns a set amount of CO2 companies can emit each year which is known as the cap. If companies produce less than their designated amount, they earn carbon credits that they can sell to others who are producing more than their carbon targets. The more a company cuts emissions, the greater potential there is for the company to earn from trading carbon credits.