International Emissions Trading Rules as a Compliance Tool: What is Necessary, Effective and Workable?
Governments are currently negotiating rules to govern international greenhouse gas (GHG) emissions trading under the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC).1 Emissions trading is a critical element of climate policy because it can allow countries to implement emissions limitation commitments at a significantly lower cost than if such commitments had to be implemented solely from mitigation activities within each country's own borders. Emissions trading thus can promote compliance with the Protocol's emission limitation and reduction commitments; it helps prevent "overemitting."
However, in connection with negotiations on the Protocol, a number of governments and nongovernmental organizations (NGOs) have raised concerns that the inclusion of a trading program provides additional opportunity and incentives for noncompliance in the form of "overselling." "Overselling" will occur if a country that is a party to the Protocol sells allowances that the country ultimately will need to cover its emissions and thus will be unable to meet its emission limitation or reduction commitment.