International Climate Change Programs: Lessons Learned from the European Union's Emissions Trading Scheme and the Kyoto Protocol's Clean Development Mechanism
GAO-09-151
Published: Nov 18, 2008. Publicly Released: Dec 02, 2008.
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Highlights
International policies to address climate change have largely relied on market-based programs; for example, under the European Union's Emissions Trading Scheme (ETS) phase I (2005 to 2007) carbon dioxide emissions reductions were sought by setting a cap on each member state's allowable emissions and distributing tradable allowances to covered entities, such as power plants. Beginning operation in 2002, the Kyoto Protocol's Clean Development Mechanism (CDM) has relied on offsets, allowing certain industrialized nations to pay for emission reduction projects in developing countries--where the cost of abatement may be less expensive--in addition to reducing emissions within their borders. Legislative proposals to limit greenhouse gas emissions are under consideration in the United States. In this context, GAO was asked to examine the effects of and lessons learned from (1) the ETS phase I and (2) the CDM. GAO worked with the National Academy of Sciences to identify experts in market-based programs and gathered their opinions through a questionnaire, interviewed stakeholders, and reviewed available information.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| In deliberating legislation intended to limit greenhouse gas emissions that would employ a cap-and-trade system and developing policies that achieve the intended results in a cost-effective manner, Congress may wish to consider the importance of ensuring the availability and reliability of historic emissions data, with an accuracy compatible with the program's point of regulation, from entities that will be affected by the regulatory scheme prior to its establishment. | Following the issuance of this report, and as part of its consideration of climate change legislation, GAO was asked to testify on topics addressed in our Matters for Congressional Consideration. Specifically, in 2009, GAO testified on three separate occasions at the invitation of Congress. These testimonies are summarized in the following three products: (1) In GAO-09-456T, we testified on the potential role of carbon offsets in climate change legislation, noting key lessons learned from the EU's use of the Clean Development Mechanism offsets program in the European cap-and-trade system. (2) In GAO-09-423T, we testified on the need for high quality greenhouse gas emissions data in establishing programs to address climate change, using illustrative information from the EU's experience in setting program baselines and emissions limits in its cap-and-trade program. (3) In GAO-09-950T, we discussed the benefits and drawbacks of various approaches for allocating tradable emissions permits, or allowances, under a cap-and-trade program, as well as various options for distributing revenue generated by the sale of these allowances. Findings in both areas were heavily informed by our work on GAO-09-151. | |
| In deliberating legislation intended to limit greenhouse gas emissions that would employ a cap-and-trade system or allow the use of carbon offset programs such as the Clean Development Mechanism, and developing policies that achieve the intended results in a cost-effective manner, Congress may wish to consider the importance of long-term certainty in encouraging investments in low-carbon technologies. | Following the issuance of this report, and as part of its consideration of climate change legislation, GAO was asked to testify on topics addressed in our Matters for Congressional Consideration. Specifically, in 2009, GAO testified on three separate occasions at the invitation of Congress. These testimonies are summarized in the following three products: (1) In GAO-09-456T, we testified on the potential role of carbon offsets in climate change legislation, noting key lessons learned from the EU's use of the Clean Development Mechanism offsets program in the European cap-and-trade system. (2) In GAO-09-423T, we testified on the need for high quality greenhouse gas emissions data in establishing programs to address climate change, using illustrative information from the EU's experience in setting program baselines and emissions limits in its cap-and-trade program. (3) In GAO-09-950T, we discussed the benefits and drawbacks of various approaches for allocating tradable emissions permits, or allowances, under a cap-and-trade program, as well as various options for distributing revenue generated by the sale of these allowances. Findings in both areas were heavily informed by our work on GAO-09-151. | |
| In deliberating legislation intended to limit greenhouse gas emissions that would employ a cap-and-trade system and developing policies that achieve the intended results in a cost-effective manner, Congress may wish to consider the importance of understanding how the means of distributing allowances to emit greenhouse gases--such as free allocation versus auctioning--may create and redistribute substantial wealth. | Following the issuance of this report, and as part of its consideration of climate change legislation, GAO was asked to testify on topics addressed in our Matters for Congressional Consideration. Specifically, in 2009, GAO testified on three separate occasions at the invitation of Congress. These testimonies are summarized in the following three products: (1) In GAO-09-456T, we testified on the potential role of carbon offsets in climate change legislation, noting key lessons learned from the EU's use of the Clean Development Mechanism offsets program in the European cap-and-trade system. (2) In GAO-09-423T, we testified on the need for high quality greenhouse gas emissions data in establishing programs to address climate change, using illustrative information from the EU's experience in setting program baselines and emissions limits in its cap-and-trade program. (3) In GAO-09-950T, we discussed the benefits and drawbacks of various approaches for allocating tradable emissions permits, or allowances, under a cap-and-trade program, as well as various options for distributing revenue generated by the sale of these allowances. Findings in both areas were heavily informed by our work on GAO-09-151. | |
| In deliberating legislation intended to limit greenhouse gas emissions that would allow the use of carbon offset programs such as the Clean Development Mechanism, and developing policies that achieve the intended results in a cost-effective manner, Congress may wish to consider that it may be possible to achieve the CDM's sustainable development goals and emissions cuts in developing countries more directly and cost-effectively through a means other than the existing mechanism. | Following the issuance of this report, and as part of its consideration of climate change legislation, GAO was asked to testify on topics addressed in our Matters for Congressional Consideration. Specifically, in 2009, GAO testified on three separate occasions at the invitation of Congress. These testimonies are summarized in the following three products: (1) In GAO-09-456T, we testified on the potential role of carbon offsets in climate change legislation, noting key lessons learned from the EU's use of the Clean Development Mechanism offsets program in the European cap-and-trade system. (2) In GAO-09-423T, we testified on the need for high quality greenhouse gas emissions data in establishing programs to address climate change, using illustrative information from the EU's experience in setting program baselines and emissions limits in its cap-and-trade program. (3) In GAO-09-950T, we discussed the benefits and drawbacks of various approaches for allocating tradable emissions permits, or allowances, under a cap-and-trade program, as well as various options for distributing revenue generated by the sale of these allowances. Findings in both areas were heavily informed by our work on GAO-09-151. | |
| In deliberating legislation intended to limit greenhouse gas emissions that would employ a cap-and-trade system or allow the use of carbon offset programs such as the Clean Development Mechanism, and developing policies that achieve the intended results in a cost-effective manner, Congress may wish to consider that the use of carbon offsets in a cap-and-trade system can undermine the system's integrity, given that it is not possible to ensure that every credit represents a real, measurable, and long-term reduction in emissions. | Following the issuance of this report, and as part of its consideration of climate change legislation, GAO was asked to testify on topics addressed in our Matters for Congressional Consideration. Specifically, in 2009, GAO testified on three separate occasions at the invitation of Congress. These testimonies are summarized in the following three products: (1) In GAO-09-456T, we testified on the potential role of carbon offsets in climate change legislation, noting key lessons learned from the EU's use of the Clean Development Mechanism offsets program in the European cap-and-trade system. (2) In GAO-09-423T, we testified on the need for high quality greenhouse gas emissions data in establishing programs to address climate change, using illustrative information from the EU's experience in setting program baselines and emissions limits in its cap-and-trade program. (3) In GAO-09-950T, we discussed the benefits and drawbacks of various approaches for allocating tradable emissions permits, or allowances, under a cap-and-trade program, as well as various options for distributing revenue generated by the sale of these allowances. Findings in both areas were heavily informed by our work on GAO-09-151. | |
| In deliberating legislation intended to limit greenhouse gas emissions that would allow the use of carbon offset programs such as the Clean Development Mechanism, and developing policies that achieve the intended results in a cost-effective manner, Congress may wish to consider that while proposed reforms may significantly improve the CDM's effectiveness, carbon offsets involve fundamental tradeoffs and may not be a reliable long-term approach to climate change mitigation. | Following the issuance of this report, and as part of its consideration of climate change legislation, GAO was asked to testify on topics addressed in our Matters for Congressional Consideration. Specifically, in 2009, GAO testified on three separate occasions at the invitation of Congress. These testimonies are summarized in the following three products: (1) In GAO-09-456T, we testified on the potential role of carbon offsets in climate change legislation, noting key lessons learned from the EU's use of the Clean Development Mechanism offsets program in the European cap-and-trade system. (2) In GAO-09-423T, we testified on the need for high quality greenhouse gas emissions data in establishing programs to address climate change, using illustrative information from the EU's experience in setting program baselines and emissions limits in its cap-and-trade program. (3) In GAO-09-950T, we discussed the benefits and drawbacks of various approaches for allocating tradable emissions permits, or allowances, under a cap-and-trade program, as well as various options for distributing revenue generated by the sale of these allowances. Findings in both areas were heavily informed by our work on GAO-09-151. |
Full Report
Topics
Air pollutionAir pollution controlAllowancesCarbon dioxideClimateClimate changeCongressional oversightData collectionData integrityDecision makingDeveloping countriesEmissions tradingIndustrial pollutionLessons learnedPollution controlPollution monitoringProgram evaluationProgram managementProposed legislationProtocolsTechnology