Abstract
The term “emissions trading” simply refers to a tradeable-permit system in which a greenhouse gases emitter (a firm or country) can buy and sell permission to emit a certain amount of emissions from or to other emitters who are below or above their limits. Emissions trading was proposed as a legal instrument designed to reduce global greenhouse gas emissions at the Rio Summit in 1992. Its principal advantage is that it provides first for a stabilization of global pollution levels, and subsequently for a gradual reduction in the total global level. Emissions trading systems also provide individual emitters with the flexibility to decide what emission levels to aim for, and the incentive to accomplish their goals. These systems are intentionally designed to reduce pollution without impeding economic development as well as to minimize the cost of meeting target levels. This paper reviews several emissions trading programs including the U.S Acid Rain Program, the Regional Greenhouse Gas Initiative, the Kyoto Protocol, and EU trading schemes, to demonstrate the basic common structure of emissions trading systems. The focus will be on five major issues within emissions trading programs: cap settings, regulated scopes, allocation of allowances, flexible mechanisms, and penalties for over emission, and will conclude with a viable emissions trading program for Taiwan. Given that Taiwan is not yet legally bound by the Kyoto Protocol, the first step the Taiwanese government should take is to set short and long-term strategies regarding official climate change policy. Second, the government should adopt a legally binding emissions target for the nation. Third, based upon the short and long term strategies, the regulated scope should be decided upon. Forth, offset programs and flexible mechanisms should be decided upon and adopted to enhance the overall program. And fifth, current policies regarding penalties for overemitting should be reviewed and updated where necessary.