Arguably the most important achievement in the global effort to fight climate change to date is the creation of greenhouse gas emission reductions as an economic good through permit trading schemes such as the European Trading Scheme and, most importantly, the international emission cap-and-trade regime of the Kyoto Protocol.

By creating monetary value for emission reductions, these trading schemes can – like top-down technology initiatives – catalyse research and development of emission reducing (‘low’ or ‘no-carbon’) technologies. Unlike them, however, cap-and-trade regimes can also efficiently drive the dissemination of these technologies among the ‘engine of the global economy’: the Northern consumers. And given the realities of technology diffusion, the technologies developed and adopted in the North will eventually find their way to the South through a process often euphemistically referred to as ‘technology spill-over’ (or even ‘technology transfer’), a.k.a. technology exports.

Of course, it would be possible to promote such exports in the absence of domestic caps and emission trading – the intention behind the latest US climate change legislation proposal by US Senator Chuck Hagel, erstwhile cosponsor of the (in)famous ‘Byrd-Hagel Resolution’b – but it would be difficult for such a scheme to compete with the spill-over of high carbon technologies that would continue to be demanded by the Northern economic engine with ‘business as usual appetites,’c not to mention the doubtful moral situation this would raise.

The success of emission trading in helping to reduce emissions depends on the participants expecting these markets to be here to stay, and the value of the permits to increase significantly over time. The only reliable way of achieving this is by way of a sequence of ever tightening mandatory caps on permissible emissions,e i.e. by continuing the Kyoto regime – possibly with some ‘safetyvalves’ such as the introduction of maximum permit prices.

Ever since President Bush repudiated the Kyoto Protocol in early 2001, his administration has been openly opposed to the idea of carbon emission caps, let alone to mandatory ones, and has instead opted for a voluntary regime with ‘intensity targets’ and technology (export) initiatives. They have officially ruled out a review of their climate change plan before 2012, and have repeatedly indicated that they will not participate in any Kyoto followup negotiations, certainly not before this internal review. At the sub-national (State, corporate, community) level, however, a lot of measures are underway which could lend themselves to be integrated with Kyoto Protocol-type flexibility mechanisms, be it emission trading or joint implementation....

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http://www.oxfordenergy.org/pdfs/QuoVadisKyotoG8.pdf