ANÁLISIS DEL EXPEDIENTE N° 3741-2004-AA/TC (LIMA RAMÓN HERNANDO SALAZAR

There are significant differences between the FCCC and the SSP agreements and between the types of trading that each permits. The FCCC is a global agreement while the SSP is European (including parts of the FSU). The pollutants targeted under the FCCC are uniformly dispersed pollutants, whilst those legislated for by the SSP are non-uniformly dispersed. FCCC trades can be undertaken by firms or by countries, while SSP trades are undertaken by countries only.

Because carbon dioxide is a uniformly dispersed pollutant, trades under the FCCC are expected to be ‘one for one trades’, though technically they need not be. A ‘one for one’ trade sees net emissions remaining constant: the same amount of emission increase is undertaken at one location as emission reduction is undertaken at another. SSP trades are expected to be ‘non one for one’ exchange rate trades. A ‘non one for one’ trade sees net emissions changing; different levels of emission reduction and increase take place.

A final difference between the two agreements is the fiict that not all signatories under the FCCC have set themselves emission targets, whereas all SSP signatories have. FCCC trading is hindered by the feet that many countries have not set emission targets. Not knowing what their emissions would be when countries are not involved in joint

implementation deals makes it particularly difficult to discover how much emission reduction is achieved by projects when they are. This problem does not exist in the context of the Second Sulphur Protocol, because all signatories to the SSP have agreed to emission targets. This distinction between the two agreements means that FCCC trading is described as ‘open’ but sulphur trading as ‘closed’.

In a more fimdamental sense the key problems feeing joint implementation for the FCCC and the SSP differ. For FCCC the feet that not all countries have set themselves emission reduction targets means that baselines have to be constructed and project by project analysis of the emission reduction achieved undertaken. For sulphur trading the problem is that sulphur is a non uniformly dispersed pollutant and that changing the location of emission reduction can lead to blackspots.

The FCCC and the SSP can be expected to evolve in different ways. FCCC trading will change as more and more countries establish emission reduction targets. The ‘ultimate’ FCCC regime would see all countries having set themselves emission targets and undertaking trades. Evolution in the SSP context will revolve around the trade off between economic efficiency and protecting third parties. No final regime is obvious in the SSP context.

2.3.4 O ther Trading Systems

Many other international and national emission reduction agreements include provision for joint inplementation or tradable permits. The Montreal Protocol for the Protection of

Stratospheric Ozone was the first international protocol that allowed joint fulfilment of emission reduction commitments (Klaassen, 1995, p. 301; on trading under the Montreal Protocol see Bohm 1990, DeSombre and Kauffinan 1994 and Klaassen 1995, pp. 185- 189). The Montreal Protocol allows parties to transfer CFC production quotas to other parties. Companies may trade any portion of their quotas so long as the total production of the two trading firms does not exceed agreed limits. About twenty trades involving EU based companies took place in 1992 and 1993, a trading volume of 20-30,000 tons per

year: this figure is about 5% of the 415,000 tons of CFCs produced in Europe in 1986 (when companies were awarded their credits under the Protocol) and 10-15% of the amount produced in 1991 (Klaassen, 1995).

The US Environmental Protection Agency’s emissions trading policy is the oldest national marketable permit system (see Dwyer 1992, Foster and Hahn 1995, Hahn and Hester 1989 Klaassen 1995, pp. 146-157 and Tietenberg 1985). This emission trading programme operates nation-wide within the US and covers sulphur oxides. It was originally intended to provide greater flexibility to firms in meeting the requirements of the Clean Air Act. Firms can engage in four types of trading: ofifeets, netting, bubbles and banking. All forms of trading between the mid 1970s and the mid 1980s saved between $1 and $13 billion (Klaassen 1995, p. 150).

In November 1990 the United States’ Clean Air Act Amendments (CAAA) became law (see Kete 1992, Klaassen 1995 pp. 162-175 and Rico 1995). The acid rain programme set a 10 million ton (US tons) per year reduction in sulphur dioxide emissions fi’om the 1980 level and a 2 million ton per year reduction in nitrogen oxides emissions. An emission trading scheme was integral to the agreement; the trading programme had the potential to reduce the cost of meeting the EPA’s air quality targets by $9.3 - $13.4 billion compared with command and control (ICF, 1992).

Under CAAA trading there are four ways to obtain permits: under an initial allocation, via an annual EPA auction, purchased fi’om EPA reserves or purchased fiom another permit holder in the open market. Newcomers to the energy supply industry (beginning operation after 1996) are not allocated allowances and have to obtain permits in one of the latter three ways. Rico (1995) argues that open market sales are going so well that the auctions’ role as a feil safe method for newcomers to buy permits (a market of last resort) is unnecessary.

An emission reduction credit system operates in the South Coast Air Quality Management District (SCAQMD) in California, a district which includes the Los Angeles Basin. Regulators in this region have made trading difficult by granting few credits for emission reduction achieved by companies. The higher the regulator sets the standard of technology that firms must possess, the harder it is for firms to go beyond this standard and achieve additional emission reduction worthy o f credits; regulators assume that the emission reduction should have been undertaken anyway.. As a consequence, most credits sold in the SCAQMD market have come fi*om firms that closed down.

Parallels can also be drawn between non attainment areas in the SCAQMD and countries with emission targets (annex one countries) under the FCCC: most US sulphur trading is conducted by companies in non attainment areas; carbon trading is interesting to companies whose governments have set emission reduction targets.

Table 2.3 below summarises information on the five agreements discussed above. The second column tells us whether the pollutant traded is uniformly or non uniformly dispersed. The third column makes a distinction between international and national trading schemes. Column four states whether the trading agents are countries or firms.

Table 2,3: Five International Agreements Allowing Trading

Agreement Unif./Non Unif.

Dispersed Pollutant International or National? Trading Agents? FCCC Uniform International (Global) Firms/ Countries SSP Uniform International (Europe) Countries

Montreal Protocol Uniform International

(Global)

Firms

CAA Trading Non uniform National

(US)

Firms

CAAA Trading Non uniform National

(US)

Firms

AU intranational trading in table 2.3 is done by companies, but countries do not monopolise international trading: firms undertake international CFC production trading under the Montreal Protocol and firms may be able to trade under the FCCC. The two intra-national trading systems listed above are based in the United States. But intranational permit trading does take place in other countries: power plant quota trading takes place in Denmark, sector covenants occur in the Netherlands and ofifeets take place in Germany (Klaassen, 1995, pp. 175-184). Hungary, the Netherlands, Poland and the United Kingdom (London Economics, 1992) (Klaassen, 1995, p.320) are looking at intranational SO2 trading. (For other reviews of trading systems see Klaassen 1995,

chapter 6 and Hahn and Hester 1989).

The relationship between old and new power plants under the CAAA can be compared with that between developed and developing countries under the FCCC. New power plants in the US fece high SO* marginal abatement cost under the CAAA, because by investing in up to date technology they have already reduced their emissions. Older plants fece lower abatement costs. Under the FCCC, developed nations fece high marginal abatement costs whUe developing nations fece lower costs. The diSerence between the two situations is that under the CAAA those with lower marginal abatement costs (the older plants) must undertake the bulk of the emission reduction, whereas under the FCCC those feeing higher costs (the developed nations) must act. We can conclude that if joint implementation can bring savings under the CAAA then savings certainly would be expected under FCCC trading.