Emissions Trading as a Policy Option for Greenhouse Gas Mitigation in South Africa

"This paper is an initial study of ET, and its application to South Africa as a domestic emissions mitigation policy instrument. Whilst broad findings emerge from the guidance of theory and lessons from existing ETS implemented internationally, more research is required to confirm these findings and to explore them and others more comprehensively. An emissions trading scheme (ETS) is based on the allocation of allowances to emit pollutants, which in the case of climate change are greenhouse gases. Allowances are allocated to a defined set of emitters,who are required to hold sufficient allowances to cover their emissions at the end of a compliance period, or face penalties. Scarcity is created in the scheme through the allocation of fewer allowances than emissions, resulting in emitters having to choose between reducing their emissions in line with their allowance allocations, or purchasing additional allowances to cover their excess emissions levels. The outcome of individual emitters’ choices will be determined by a number of factors, primarily that of cost. Where an emitter can mitigate its emissions cost effectively, it is likely to do so to avoid penalties associated with non-compliance. However, when it gets very expensive to mitigate a marginal unit of emissions, the emitter will look to purchase allowances from other emitters whose mitigation profile is more cost-efficient."