This paper outlines the differences between absolute emission limits and intensity- based emission targets and why reducing emissions’ intensity – that is, emissions per dollar of real gross domestic product (GDP), as opposed to implementing absolute caps, is a more effective means to reducing the overall level of greenhouse gas (GHG) emissions. This paper demonstrates an understanding on why intensity based emission limits is a useful alternative to absolute emission limits under uncertainty. The argument draws on three key observations: greenhouse gas emission levels will always continue to grow, so intensity targets will better accommodate with that growth; annual emission adjustments, or in other words absolute targets, emphasize zero or declining emissions growth while intensity targets do not, and lastly intensity targets favour developing countries as their economic development is tied to emissions growth for the foreseeable future.
There is a huge controversy in which Canadians are being told that the only way of solving the global warming problem requires an intensity based approach for the reduction of all of our GHG emissions. But is intensity emission limits really the best way to ensure that the total GHG emissions actually go down and is the only solution to climate change? The greenhouse gas intensity is basically a ratio of greenhouse gas emissions per unit of economic activity (GDP or unit of production). Economies and many industries around the world are constantly growing which is why GHG intensity can decline while GHG emissions continue to rise, and so an absence of effective climate change policies, such as a cap and trade system, would not reduce GHG emissions (Marshall, 2007). Most emissions can be limited by an absolute cap on the quantity of emissions or by a maximum allowed intensity limit relative to some measure of output purchased by consumers. This would be the amount of energy input required by some production process or even GDP in the economy. This intensity limit can be imposed either directly as an emission limit , an efficiency performance standard, or indirectly by means of technology mandates that have the same effect (Ellerman & Wing, 2003). It is controversial that intensity limits are by far one of the more common methods of limiting emissions in the field of environmental regulation. For an example, when it comes to GHG emissions limitations or reductions, absolute limits have been adopted at the international level in the Kyoto Protocol, where in the US the president adopted an intensity target instead.
The Kyoto Protocol is basically an international treaty that sets binding obligations on industrialized countries to reduce emissions of greenhouse gases. This would be known as an absolute-based policy as opposed to an intensity-based approach. As part of the Kyoto Protocol, many developed countries have agreed to legally binding limitations/reductions in their emissions of greenhouse gases in periods of time. The absolute character of these caps among the countries ability to emit does not account for the possibility that economies and their emissions might grow more quickly than was expected at the time the targets were negotiated. This would therefore inflict larger than anticipated economic losses. This is one of the main issues in the world today: concerns that attempting to cut GHG emissions will cause significant increases in energy prices and reductions in economic output and welfare.
Throughout the paper, there are different sections that outline different concepts. In section 2.0, the paper explains the difference between absolute and intensity limits under uncertainty. Our aim is to develop the implications of uncertainty in emissions from the starting point and GDP for policy makers’ choice between an absolute and an intensity cap. In particular, we thoroughly establish the conditions under which one or the other form of emission