ABSTRACT
Industries that own a right to pollute can trade any unused right below the allowable amount. To reduce environmental harm over time, an ‘exchange rate’ is usually imposed. is means that the amount of allowable pollution or resource consumption can be reduced each time a transaction occurs or, alternatively, each year or two. is osets some of the future damage that would otherwise be done. It also gives industries an incentive to clean up their act. By introducing cleaner production methods, buying out another factory and closing it down, or going out of production, an industry can then sell these ‘unused’ rights to another. So environmental impact mitigation is achieved over time, relatively or absolutely. With active trading, the exchange rate will result in lower waste or pollution. But because the reductions in the cap or exchange rate are essentially set through the political process, they have generally not been adequate. e main aim of trading systems has been to achieve emissions reductions where it is easiest and cheapest for industry to do so. Environmental trading could reduce
emissions, and pay for the restoration of rural ecological systems. However, so far, trading has not been applied to achieve net gains, especially in urban areas. Despite the rhetoric, osets only reduce impacts in one part of the system, by allowing more negative impacts in another.
