The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate-change issues through flexible market mechanisms. The author addresses a number of policy issues that must be considered in designing and implementing an international greenhouse gas (GHG) emissions-trading scheme. These include: how much of a Party's assigned amount of GHG emissions can be traded internationally; emissions-trading models; competitiveness concerns in the allocation of emissions permits; banking and borrowing; liability for noncompliance; how to enlarge the emissions-trading system; and bubbles. Although the focus is exclusively on emissions trading, its relationship with the clean development mechanism, joint implementation, and bubbles are discussed wherever necessary. By providing some new insights, the author aims to contribute to the design and operationalization of an international emissions-trading scheme.
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