The Design and Implementation of an International Trading Scheme for Greenhouse Gas Emissions

Abstract

The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate change issues through flexible market mechanisms. In this paper, we address a number of policy issues that must be considered in designing and implementing an international greenhouse gas (GHG) emissions trading scheme. These include how much of a Party's assigned amount of GHG emissions can be traded internationally; emissions trading models; competitiveness concerns in the allocation of emissions permits; banking and borrowing; the issue of liability for non-compliance; enlarging emissions trading system; and bubbles. Although our focus is exclusively on emissions trading, we discuss its relationship with the clean development mechanism, joint implementation and bubbles wherever necessary. By providing some new insights, the paper aims to contribute to the design and operationlization of an international emissions trading scheme.

Keywords: Bubbles, carbon tax, clean development mechanism, emissions trading, enforcement and compliance, greenhouse gases, international competitiveness, joint implementation, Kyoto Protocol

JEL Classification: K32, Q48, Q52, Q54, Q58