Emissions Trading

Emissions trading is a market-based instrument to achieve environmental targets in a cost-effective way by allowing legal entities to buy and sell emission rights. The current international dissemination and intended linking of emissions trading schemes underlines the growing relevance of this instrument. There are three basic design variants of emissions trading: cap-and-trade (allowance trading), performance standard rate trading (credit trading) and project-based credit trading (such as domestic offsets, JI and the CDM). These design variants are analysed in terms of effectiveness, efficiency and acceptance. It is also explained why emissions trading schemes may become inefficient hybrids of such design variants