ABSTRACT
Standard economic theory considers GHG emissions to be a negative externality, that is, a cost that is not reflected in the market price but that affects economic third parties who do not have a legal right to compensation. By the polluter-pays principle, this market failure requires the state to intervene using legal, fiscal or economic instruments. The aim of emission-rights markets is to achieve a given reduction in emissions for a minimal cost. This mechanism involves determining ex ante an overall maximum quantity of pollutants that must not be exceeded and distributing this allocation among different economic actors. Economic theory indicates that it is better to use a tax if the marginal abatement cost increases more quickly for enterprises than the marginal environmental damage. Supporters of the approach generally cite its economic efficiency and flexibility, and the possibility of negotiations or political bargaining between developed and developing countries.
