Emissions still the burning issue

The concept of emissions trading is simple. Emitters of greenhouse gases are given an allocation of allowances (the number of tonnes of greenhouse gases they are allowed to emit over a particular time). At the end of the period the company must have sufficient allowances to match all its emissions. If a company is likely to generate more emissions than the number of allowances it holds, it faces two choices: invest in reducing its emissions at the source or buy allowances from another company that has met and gone beyond its targets, and therefore has allowances to sell.

If increasing numbers of companies choose to buy allowances to pollute rather than reduce their emissions directly, then the cost of the allowances goes up, making investment in emissions-reducing technologies more financially attractive. The economic principle is that by setting a market price for carbon we get emissions reductions at minimum cost. Sounds good so far.

theage