Along with global pollution caused by intensive generation facilities and factories, international Authorities have commenced global operations to line-off pollution rates for industrialized countries. In 1992, industrialized countries have come together to make a huge step in order to preclude over-pollution throughout the World by signing the Kyoto Protocol. Most important result of the convention shines out as a new global emission trading market, also called Carbon trading market. Global carbon trading takes a big role as a growing market throughout the World. International trade volume of the market is growing incrementally. Whereas in 2007 the market trading volume was 64 billion dollars, in 2008 the capital has exceed 140 billion dollars only in a year, which is expected to be grown to 1 trillion dollars up to the year of 2020 according to New Energy Finance Magazine.
Carbon (or emission) trade has surfaced basically following the Kyoto Protocol signed by over 180 countries including Turkey, who call for 38 industrialized countries to reduce and limit their greenhouse gas emission amounts to a certain proportional level. All industrialized countries except the United States have agreed legally-binding emission restrictions. These pollution allowance rates have been reduced in 2008 by %5.2 than those of 1990. Limitation includes basically 6 different types of emissions, however carbon dioxide takes place as the most dominant emissions among the others. Carbon dioxide is basically not a commodity or a form of energy, but it is the main by-product of burning fossil fuels. Emission trading is an integral part of the global energy market providing a link between oil, coal and natural gas.
Kyoto Protocol and Flexible Mechanisms
The Kyoto Protocol set up three “flexible mechanisms” by which countries trade the right to emit green house gases using the cheapest methods: emissions trading, the clean development mechanism, and joint implementation. International emissions trading allows countries emitting less than their “assigned amount” under the Kyoto Protocol to trade their surpluses with countries in deficit. The clean development mechanism (CDM) enables industrialized countries to generate additional emissions allowances (credits) by investing in emission-reduction projects in developing countries. Joint implementation (JI) provides a similar mechanism for industrialized countries to invest in emission-reduction projects in other industrialized countries.
Emissions Trading Process
Principles of carbon emission trading are easy to understand. Each of the generation facilities has a domestic emission limit in connection with the country limit. For example, in the event of a company is operating energy generation with a small amount of emission, it has the right to sell its emission limit to the trading market or directly to another company, which is generating energy with intensive carbon emissions exceeding the limits set forth in Kyoto Protocol. Basically, eco-friendly facilities get an extra profit by selling their surplus emission capacities. This simple mechanism benefits in two other ways: this mechanism incentives companies to invest on eco- friendly production and also prevents the over pollution by balancing the limits of emissions in total.
There are mainly two types of markets: mandatory market and voluntary market. In the mandatory market, participants can only be the industrialized countries that signed emissions trading protocol under the Kyoto Protocol. As today, approximately %80 of the total transactions is made in mandatory market. Voluntary market mainly consists of the countries that are not sign the emission trading protocol; where emission limitation does not present but companies are willing to build up a good commercial standing and image. For example, google.co has announced to limit their emissions under the emission rates according to Kyoto Protocol. Participants of the voluntary market are also allowed to sell their surplus emission limits to other countries. Since the U.S. government has not sign the protocol, The U.S. based facilities become the pioneer companies in the voluntary market.
Turkey’s approach to emission trading
Even though Turkey is a member state of Kyoto Protocol, yet it does not sign for the mandatory market, therefore at the moment Turkish companies participate into voluntary emission market only. Law draft for joining the mandatory market is submitted at the parliament and waiting for the final amendments to get the approval.
Carbon emission in Turkey is at the lowest limit among the industrialized European countries. However, carbon emission is growing so fast that whereas in 1990 Carbon emission was 139 million ton, in 2006 the rates were doubled and reached over 275 million ton. In this case, State of Turkey focused on a future plan in order to avoid intensive prices of emission trading credits, which can harm the private companies even by causing bankruptcy.
Biggest energy companies like Zorlu Enerji, Akenerji, Enerjisa and Demirer are queued for obtaining carbon standardization certificate according to Kyoto Protocol, which refers that these pioneer companies foresees Turkey to participate into mandatory emission market in few years.