Future Law Issues 

Carbon Trading commences with the issue by the Government to targeted emitters of permissions to emit specified quantities of greenhouse gas (GHG) into the atmosphere.

If they exceed that quantity, they must buy permissions from other emitters who have a surplus or from growers of post-1990 plantations whose trees have recaptured CO2 from the atmosphere and who agree to hold that CO2 for a specified period.

By this means a market develops which sets a price for carbon emissions.

The Government will choose those emitters who are required to limit their GHG emissions. These could initially include producers of fossil fuel energy and large industries. Other emitters may be added later on.

The European Union (EU) commenced the world’s first Carbon Trading market on 1 January 2005. Other nations are interested in joining that market or basing their carbon taxes on the EU market’s prices.

The prices for all the goods and services you buy will alter depending on whatever extra cost it takes to produce them due to the cost of purchasing permissions. Your prices will also change as a result of this. Prices will continue to responds to the market’s pressures for many years.

You should seek further advice as to how this will impact on your business.

Farmers can be involved by growing trees to offset GHG emissions. These trees need to comply with the legal requirements of the Kyoto Protocol, some of which have still to be worked out. You should seek legal and other professional advice before setting up a tree-growing project.

Everyone will eventually be involved because the cost of goods and services whose production cause GHG emissions will increase and those which cause less, or no, GHG emissions will become more favourable. Those who anticipate the price changes will be in the best position to respond to them.

The Kyoto Protocol will become a binding international treaty on 16 February 2005. Whether the nations involved impose penalties on nations that refuse to carry out their GHG obligations or whether they leave this to the international market place will be resolved in time.

An emissions trading market is likely to work in much the same way as commodities trading markets work including provision for futures trading. Some aspects will be similar to a stock exchange but currency markets are the closest equivalent.

Legally the Government does not have to be involved in running this system. Practically, however, the Government’s participation is essential. One of the most important issues the Government needs to resolve is how to operate such a market without harming the economy.

All industries should welcome a Carbon Trading system eventually. This is because it will open up a range of new opportunities and initiatives for them. In the early period, however, industries relying heavily on fossil fuels will need to regularly reassess their positions.

Those who are late in responding to the change are likely to experience difficulties.

You can participate in the EU's trading market now if you wish. You will need to assess, however, what benefit will be involved from doing so.