ABSTRACT
…addressing the governance issue, it will be argued that a trend break should be established by using tradable emission rights as the major policy instrument to achieve drastic emission reductions. The design of a tradable system of this type is, however, of crucial importance. The introduction of credit trading is likely to make the current policy framework of standards, covenants, taxes and subsidies more flexible. However, this will result in a ‘lock-in’ situation which is neither effective nor efficient, because credit trading does not place a cap on total emissions and leaves the entitlement to emit unpriced. Permit trading, on the other hand, is an effective and efficient alternative, because it places a ceiling on total emissions and attaches a price to the entitlement to emit, providing a strong incentive to switch to sustainable energy. This chapter shows that, contrary to common belief, permit trading is not only feasible for industry, but also for consumers, and that administrative costs can be kept low.
