Strategy Development and Risk Management in the Context of Emission Rights Trading

Abstract

On February 16, 2005, the legal framework for emission reduction according to the Kyoto Protocol and the Burden Sharing Agreement came into force. The Kyoto Protocol includes three main mechanisms for emission reduction, namely Emission Trading, Joint Implementation and Clean Development (Kyoto Protocol 1997). The target is to achieve, by 2012, an emission reduction of greenhouse gases of at least 5 % compared to the basis year 1990. The European Community (since 01.01.1992 European Union) member states are in obligation to reduce their emission output by 8 % (Konzak and Hesler 2006). Complementarily, the Burden Sharing Agreement regulates the contribution quota of every European Union member state to emission reduction until 2012 (Elspas and Stewing 2006). Therefore, in 2005, with introduction of the first trading period (2005–2007), the European Community established the use of the Emission Trading mechanism. Thus, the European Community implemented, as one of the first regions world-wide, one of the three environment protection mechanisms of the Kyoto Protocol. As a result, the companies were compelled to trade for a right which had previously been free of charge, namely the right to pollute the air. Already in the first trading period several million emission allowances have been traded. This first emission trading period involved 1,200 companies and 12,000 plants across the 25 European Community member states (Sandhoevel 2006). The companies concerned can be found especially in carbon-intensive industries, such as energy industry and refinery industry. Those industries obtained 78 % of the emission allowances. The production companies, such as coking plant, steel industry, cement industry, glass industry, ceramic industry, cellulose industry, paper industry, got the remaining 22 % of the allowances. In the focus of the companies’ emission reduction were plants related to energy transformation (Salje 2006).