Carbon Trading

Emission reduction mechanism

In order to achieve the ultimate goal of the United Nations Framework Convention on Climate Change global greenhouse gas reduction, three emission reduction mechanisms have been agreed:
Clean Development Mechanism
The more developed countries will provide funding and technology for developing countries to develop the sustainable development programs. The former will receive Certified Emissions Reduction (CERs, dedicated to the Clean Development Mechanism) as motivation reward.
Joint Implementation
Under the supervision of the Supervisory Committee, developing countries can acquire and transfer Emission Reduction Units (ERUs) with each other.
Developing countries with higher emission reduction costs can invest in emission reduction projects in developing countries with lower emission reduction costs to reduce emission reduction costs and obtain emission reduction units; developing countries with lower emission reduction costs can obtain investment funds and advanced technology for emission reduction.
Emissions Trade
Units need more carbon emissions can purchase carbon rights from units with low carbon emissions in the carbon trading market.
All three allow for the transfer or acquisition of emission reduction units between the countries of the United Nations Framework Convention on Climate Change, but the specific rules and roles are different.

Forms of carbon trading

Carbon trading is divided into two types:
Allowance-based transactions
Refers to the transactions of ERUs generated under Caps (Cap), such as the EU Emissions Trading System’s “European Union Allowances” (EUAs) transactions. It is mainly the excess emission reduction exchange between countries that are incuded by the Kyoto Protocol, usually in spot trading way.
Project-based transactions
Refers to the transactions of emission reduction units arising from emission reduction projects, such as “Certified Emission Reduction” under the Clean Development Mechanism and “Emission Reduction Units” under the Joint Implementation mechanism, mainly Emissions reductions generated through a country-recognized emission reduction program are usually pre-sold in futures.

Low-carbon economy

The low-carbon economy is an economic model based on low energy consumption, low pollution and low emissions. It is another major progress of human society following agricultural civilization and industrial civilization. Its essence is to improve energy efficiency, develop clean energy technologies, optimize industrial structure, and fundamentally change the concept of human survival and development.
The “low-carbon economy” was first seen in the government document in the 2003 UK Energy White Paper “The Future of Our Energy: Creating a Low-Carbon Economy”, which was followed by strong support from the United Nations. In July 2007, the US Senate proposed the Low Carbon Economy Act, indicating that the development roadmap of a low carbon economy will become an important strategic choice for the future of the United States. After taking office, Obama pinpointed that the clean energy economy as an important means of revitalizing the US economy and enhancing US leadership. In June 2009, the US House of Representatives passed the 2009 US Clean Energy and Security Act, which has two cores: one is to vigorously develop clean energy technologies and reduce dependence on fossil fuels; the other is to establish a greenhouse gas emissions trade. The system has developed a new type of carbon finance market that is comparable in size to the oil future market.

Carbon trading

Carbon trading is the only way to lead the development of low-carbon economy by the market mechanism. The low-carbon economy will ultimately reduce its dependence on fossil fuels and reduce greenhouse gas emissions through technological innovation and optimize economy transformation. However, the history has shown that without the introduction of market mechanisms, it is impossible to achieve emission reduction targets only through voluntary or compulsory behavior of enterprises and individuals.