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Emissions Trading |
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An emission trading is essentially a market based trading scheme. It is aimed at improvement of environmental conditions. It allows participants to go for purchase and sell of permits for environmental emissions or credits meant for reduction in emissions of environmental pollutants.
An emission trading is arguably a cost effective medium for market determination of the lowest cost vehicle of pollution abatement. Under this type of schemes concerned emissions regulator first fixes the total acceptable amount of emissions. This is then divided into tradeable units. These tradeable units are in turn known as permits or credits, which can be allocated to participants of said scheme. Participants indulging in emission of pollutants need to obtain requisite tradeable units as a compensation for their emissions. Again those participants who are capable of reducing pollution may possess surplus permits, which can be sold off to companies who have failed in reducing pollution to requisite levels, either due to technological factors or due to cost considerations. In certain cases emission-trading schemes are better than some regulatory approaches in terms of reduction of compliance cost and occurrence of desired environmental outcome. Load-based licensing or LBL is an effective administrative infrastructure capable of supporting wide scale usage of emission trading schemes. It may be noted that signatories to Kyoto Protocol have accepted set targets for reduction of emissions over 2008-2012 commitment period. Allowed emissions have been divided into “assigned amount units” or AAUs for participating nations. Concept of Emissions trading has been specified under Article 17 of Kyoto Protocol. Now as carbon dioxide is regarded as the singlemost important greenhouse gas, in common parlance people term it as carbon trading. Carbon is at present actively traded in global carbon markets. It may be noted that in 2005 European Union Greenhouse Gas Emission Trading Scheme or EU ETS started its operations. It is the biggest multi-sector, multi-country emission-trading scheme for greenhouse gases worldwide.
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