ANALYSIS OF THE EMISSION TRADING POTENTIAL IN SRI LANKA FOR GLOBAL GREENHOUSE GAS MARKET UNDER THE KYOTO PROTOCOL

Under the United Nations Framework Convention of Climate Change (UNFCCC) reductionof Green House Gas (GHG) emissions become a global good with shared and differentiatedresponsibility vested with member countries. The Kyoto Protocol was adopted in 191)7 asthe legally hinding instrument to achieve the objectives of UNFCCC. This protocolintroduced three controversial mechanisms namely Joint Implementation (11. Article 6).Clean Development Mechanism (CDM, Article 12) and the emission trading (Article J 7) furthe establishment of markets for GHG emission reduction.Under the Annex I of UNFCCC countries are obliged to reduce their GHG by 5.2'7< fromthe total 1990 level. Global commitments under the common but di Ilcrentiatcdresponsihility principle of UNFCCC for reducing the emissions vary and depends on thecountry's level of emission. Accordingly Annex I countries were given emission reductiontargets c.g. Japan 6Lk. EU 8L.k. and US 7CJL. This issue has drawn attention or the developedcountries since it could alter their lifestyles drastically. The flexible mechanism permitsdeveloped countries to purchase GHG emission potential from developing countriesSelling GHG emission potential (although an income source) has been viewed as sellingdevelopment potential of developing countries. This puts the developing countries in adilemma in making decisions on emission trading. Therefore an in-depth knowledge onmarket potential of GHG is important.The objective of this paper is to review the flexible mechanisms under the Kyoto Protocoli.e. 11, CDM and emission trading along with principles. modalities and procedures inrelation to Sri Lankan environmental conditions and to estimate the total GHG marketpotential for Sri Lanka if the country decides to participate in the global GHG market. Thispaper presents an economic analysis of GHG market in Sri Lanka with an attempt toinvestigate the relationship between rate of emission and economic growth. This ventureessentially creates an equity problem which is discussed using different discount rates.Data from secondary sources. in particular GHG inventories for Sri Lanka for J 1)94 & 11)1)5years arc used to estimate Sri Lankan emission trading potential. These figures will heuseful for predicting Sri Lankan contribution to the emission trading market. Sinks andSources and the sectors of emission are discussed separately in order to identify the mostimportant sectors in terms of emission trading. The paper also discusses the disadvantagesof emission trading, particularly whether this would limit our development potential andsovereignty. the major criticisms against the emission trading. Finally, this paper presentsthe relationship between GHG emission. emission trading potential and economicdevelopment under various scenarios.