What is emission trading

Carbon is now tracked and traded like any other commodity. This is known as the "carbon market. More than actual emissions units can be traded and sold under the Kyoto Protocols emissions trading scheme. The other units which may be transferred under the scheme, each equal to one tonne of CO2, may be in the form of:.

Transfers and acquisitions of these units are tracked and recorded through the registry systems under the Kyoto Protocol. An international transaction log ensures secure transfer of emission reduction units between countries.

Third, entities can buy units from the government through auctioning. In this case, market demand still sets the price. In the past, entities had a fourth option — buying offshore units — but this stopped in mid This option is not currently available under the Paris Agreement.

If that changes in the future, quantity and quality limits will be needed on offshore units. Read more: New Zealand poised to introduce clean car standards and incentives to cut emissions. The entities that surrender units to the government directly face the price of emissions — either because they had to buy units from other entities or the government, or because they lost the opportunity to sell freely allocated units.

When the government sells units — through auctioning or the fixed-price mechanism — it earns revenue. In , the New Zealand government sold When selling fixed-price units that allow the market to emit more, the government has to compensate through more action to reduce domestic emissions like reducing fossil fuel use or planting more trees or purchasing emission reductions from other countries - and these actions have a cost. When ETS auctioning is introduced potentially in late , the government will receive more significant revenue.

It has signalled that any revenue from pricing agricultural emissions methane and nitrous oxide will be returned to the sector to help with a transition to lower emissions. Portsmouth Climate Festival — Portsmouth, Portsmouth. The number of available units is limited, giving them a financial value.

Market supply and demand determines the value and therefore the price of units. Each year, companies must surrender a quantity of allowances equal to their greenhouse gas emissions in tonnes. If companies produce more emissions than their available allowances, they must purchase additional units through trade or auction.