Globally, market-based policies are mechanisms to control environmental pollution at various leverage points. They work by changing relative prices – raising the cost of emissions-intensive activities and/ or lowering the cost of lower-emitting alternatives – to provide producers and consumers with a financial incentive to adopt the latter. Policies that can be considered market-based include taxes and fees, subsidies, and the use of pollution control trading systems. Market-based policy instruments provide the financial incentive to elicit specific behavior from entities responsible for greenhouse gas (GHG) emissions, whether consumers or producers.
Mandatory Market or Compliance Market or Regulated Market:
- The market is known as Clean Development Mechanism: CDM which the trading is conducted under the regulated environment in term of top-down approach: i.e. government set the emission reduction target and requests the private sector to implement, to meet the legally binding goal.
- This market is different from compliance market because its aim is the non-regally binding. Based on voluntary cap-and-trade, the market is built upon the collaboration in the private sector. The transaction can conduct through the official trading system or bilateral trading, and over-the-counter: OTC. As a result, the development and transaction costs are lesser than what require by UN certification process.
In Thailand, there are several market-based climate mitigation policies available in corroboration between Thailand Greenhouse Gas Management (Public Organization) or TGO and other sectors.
“TGO”, was established under the Ministry of Natural Resources and Environment in 2007. The organization acts as the center of collaboration between government, the private sector and international organizations to scrutinize, collect views and opinions, pursue an appraise the authorized projects, develop the emission trading market, and provide instruction and information regarding the operations on greenhouse gasses (TGO, 2015a).
Asides from the compliance market, the existing voluntary markets in Thailand include Verified Carbon Standard (VCS), Thailand Voluntary Emission Reduction Program (TVER) and Joint Credit Mechanism (JCM).
- Verified Carbon Standard (VCS) is the fundamental standard for the project developers to ensure the justification and reliability of carbon offset projects (TGO, 2015).
- Thailand Voluntary Emission Reduction Program (TVER) is the non-compliance scheme that developed by The Thailand Greenhouse Gas Management Organization (TGO). The objective of the scheme is to encourage all stakeholders to participate in mitigation act (TGO, 2015).
- Joint Credit Mechanism (JCM) is the bilateral trading mechanism which initiated by Japan. Its aims to facilitate the diffusion of low carbon technologies in the developing countries. The quantitative GHG emission reductions or removals from the host countries uses to achieve Japan’s emission reduction target (JCM, 2015).
Table1: The comparison between the Mandatory Carbon Market and the Voluntary Market
|Comparing Issue||Mandatory Market||Voluntary Market|
|Regulator||Government organization||Private organization and interested groups are able to set up the new regulatory organization.|
|Carbon Footprint Assessment||National / Industrial level||Business level|
|Emission Cap Methodology||National Cap||Voluntary Cap|
|Market Participant||Manufacturing sector (especially emission intensive ones) and Large to medium scale businesses||Any|
|Permit distribution||Free-of-Charge and auction||Free-of-Charge and auction|
|Penalty||Clear penalty policy||No penalty policy. Yet, incentives may available.|
Cap and Trade
Trading systems permit greenhouse gas emissions (Emission Trading Scheme: ETS) is a powerful tool that fights against climate change, which is known and widely used in developed countries such as the EU, US, Canada, New Zealand. The system of emission trading permits is also one of the tools applied “Financial incentives” to encourage major greenhouse gas producer to reduce greenhouse gas emissions.
The emissions trading license initiates from “the holder, mostly government sector, determines the ceiling for greenhouse gas emissions compared to the base year, also known as Cap Setting.” to the industries with the high greenhouse gas emissions. The government will “allocate emission permits, also known as Allowance Allocation” to factories and organizations under the scheme in order to limit the ceiling of emissions from these factories and organizations. Greenhouse gas emissions of each factory/ organizations will not be exceeded the set Cap each year, and they are required to report the results of emission measurements after the verification to the government every year.
The factories / organizations must “return (also called Surrender)” emissions permits. The greenhouse has been allocated by the government based on the amount of greenhouse gases emitted, as reported at the end of the year. If the greenhouse gas emissions from factory / organization over the license have been allocated, this factory/ organization have to buy permits to release greenhouse gases from factories / other organizations under the same system. Alternatively, the factory / organization probably buys carbon credits from the project reducing greenhouse gas, complied the ETS system that accepts carbon credit issuance under other schemes to be applied instead of this system, in order to offset the greenhouse gas emissions that exceeds the allocated permit. On other hand, if the factory / organization emits greenhouse gas less than its allocated permit, the number of greenhouse gas under the permit can be collected (Banking) for next year , or to sell to other factory/ organization, depending on the greenhouse gas emissions trading. The emission reduction prices will be varied according to supply and demand in the market.