Oecd Environment Directorate International Energy Agency Emissions Trading: Taking Stock and Looking Forward

oversees development of analytical papers for the purpose of providing useful and timely input to the climate change negotiations. These papers may also be useful to national policy makers and other decision-makers. In a collaborative effort, authors work with the Annex I Expert Group to develop these papers. However, the papers do not necessarily represent the views of the OECD or the IEA, nor are they intended to prejudge the views of countries participating in the Annex I Expert Group. Rather, they are Secretariat information papers intended to inform Member countries, as well as the UNFCCC audience. Great Britain and Northern Ireland, and United States of America. Korea and Mexico, as new OECD member countries, also participate in the Annex I Expert Group. Where this document refers to " countries " or " governments " it is also intended to include " regional economic organisations " , if appropriate. ACKNOWLEDGEMENTS Cédric Philibert and Julia Reinaud at the International Energy Agency prepared this paper for discussion at an AIXG seminar on future developments under the Convention, with the participation of various non-Annex I countries. The authors thank William Blyth, Martina Bosi and Richard Bradley at the IEA, Tom Jones, Jan Corfee Morlot and Jane Ellis at the OECD, as well as several Annex I and non-Annex I experts for the information, comments and ideas they provided. Tradable permit schemes have been successfully used in many applications for protecting the environment or limiting access to natural resources. In particular, emissions trading has been used in several applications with air pollutants. Emissions trading has been considered a possible tool for mitigating greenhouse gas emissions since the early 90s and became part of the Kyoto Protocol agreement. Although the Protocol has not yet entered into force, there are a great number of initiatives that aim at instituting emissions trading for greenhouse gas sources, at various levels: national, state, local and corporate. Generally, such schemes are designed to provide information and experience to companies and governmental agencies by practical experience of trading carbon dioxide equivalent emissions. The lessons learnt in the last two decades from both practical experiences of tradable permit schemes and continuous analytical efforts, depict emissions trading not as a goal by itself, but as a tool to achieve environmental goals most cost-effectively. However, cost-effectiveness can only be achieved if the market is sufficiently liquid and is effective. This proven cost-effectiveness of trading …