Dóra Fazekas Carbon Market Implications for new EU - UniCredit ...

(2) Allocating emission rights is deciding who is entitled to receive allowances. Allocation involves
a two-level decision, first, whether to auction the permits or grant them gratis to various entities,
and then how to distribute the auction revenues or permits.
(3) Defining pollution means that „not only must the potentially polluting discharge be separately
identified, but at least in theory the amount constituting pollution must be determined, as well as
the spatial and temporal relation of discharges to the harmful effects.”
Barrett and Stavins (2003) point out that a significant feature of the climate change problem is that
it occurs worldwide, irrespective of the place where CO2 is emitted. Koutstaal (1996) declares that a
system of tradeable emission permits is both an efficient and effective instrument to control CO2
emissions. He argues that other instrument types are either not as effective (e.g. a carbon tax) or not
as efficient (e.g. emission standards). Tradeable permits system offers the possibility of reaching
environmental goals at lower cost because it separates the issue of who pays for control from who
implements control, it facilitates transboundary cost-sharing. The distinctive advantage of tradable
permits lies in their ability to deliver higher levels of environmental effectiveness.
Characteristics of tradable permits schemes are:
(1) guaranteed environmental effectiveness: tradable permit schemes have the ability to achieve a
definite pollution or abatement target;
(2) cost-minimizing distribution of the burden of abatement between different sources: tradable
permit schemes allow firms facing higher costs of abatement to do less abatement, than those
firms for which pollution control is cheaper.
The direct advantage for industrial companies of emissions trading is the flexible management of
emissions allowances. For example, it is possible to implement emissions reduction investments
with other companies instead of expensive own technology developments for the reduction of
emissions. Emissions trading is advantageous for both parties and is a lot more efficient than the
system of emissions taxes and sanctions. It is of global benefit that during the introduction of the
trading of emission rights, total emissions shall not increase while the seller and the buyer shall be
encouraged to generate revenue and to save costs and thus to emit less pollutants (Hajdú, 2005).
Another conclusion is that this method realizes the polluter-pays principle since it is the person
burdening the environment that bears responsibility and actually pays for pollution exceeding the
allocated allowance. However, successful introduction and operation of the emissions trading
system and the achievement of expected environmental and economic results requires the
cooperation of industry
UNEP’s classification of emissions trading types is the distinction between (1) cap-and-trade, (2)
baseline-and-credit, and (3) offset (UNEP, 2002). Most of the emissions trading systems used are
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