ETS – Emission Trading System

Emission Trading System (ETS)

ETS is a tool or strategy to make the firms intend to reduce greenhouse gas (GHG) emissions because it is a part of climate change and that works on “cap and trade” by the government to set a Cap or limit the total level of GHG emission for firms to reduce emissions and firms always report the result to the government every year.

 

Key of ETS

• Changing type of fuel

• Collect carbon tax

• Improving energy efficiency

• Using alternative energy or renewable energy

• GHG emission trading

 

source: Newgen Energy Solution Co., Ltd., 2023

 

What’s a carbon credit?

A carbon credit is a permit that allows firms to emit carbon (CO2) into the atmosphere. And can sell or buy carbon credits in the carbon market.

**(1 carbon credit = 1 ton CO2)

 

How to trade?

If firm1 creates more pollution than Cap and firm2 creates less pollution than Cap. Firm1 will buy carbon credits from firm2 to reduce pollution and firm2 get money from firm1. Or can buy or sell carbon credit from forests’ carbon sequestration.

 

What is EU ETS?

The European Union Emission Trading System (EU ETS) is intended to combat climate change and reduce GHG emissions to prevent the heat at dangerous levels, that works on a “cap or trade” system same as above, but the cap is always reduced annually in the line of climate target and applied in all EU member states and covers in the energy sector, manufacturing industry and maritime transport.

The polluters pay for their GHG emissions and create revenue to finance the EU’s green transition and since 2005, emission reduction by 37% from power and industry plants. Each firm has one allowance to emit one ton of CO2eq and every year the firm must surrender allowance to account for their emissions to ensure GHG emissions decrease over time and in 2013 can generate revenue over 152 billion EUR.

 

Pros and Cons

Pros

• reducing GHG emission.

• development of techonology for reduce GHG emission.

• succesful in reducing GHG emission.

Cons

• government sector increased administrative cost.

• price fluctuate and difficult to predict the price.

  

This article is a part of the class “751447 SEM IN CUR ECON PROB” supervised by Asst. Prof. Napon Hongsakulvasu Faculty of Economics, Chiang Mai University.

This article was written by Sasiprapa Chaikittikhun – 621615062

 

References

Kenton, W. (2023, December 17). Carbon credits and how they can offset your carbon footprint. Investopedia. https://www.investopedia.com/terms/c/carbon_credit.asp

Newgen Energy Solution Co., Ltd. (2023, March 2). Carbon Credit – Newgen Energy Solution Co., Ltd. Newgen Energy Solution Co., Ltd. – LNG Total Solution. https://www.ngesth.com/carbon-credit/

Thunhoon. (2023, April 22). “คาร์บอนเครดิต” เมกะเทรนด์ . . .ที่ไม่ไกลตัวอย่างที่คิด.. thunhoon.com. https://thunhoon.com/article/271352

What is the EU ETS? (n.d.-a). Climate Action. https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en

What is the EU ETS? (n.d.-b). Climate Action. https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en#a-cap-and-trade-system