Emissions Trading Design

Emissions Trading Design

A Critical Overview

New Horizons in Environmental and Energy Law series

Stefan E. Weishaar

Emissions trading is becoming an increasingly popular policy instrument with growing diversity in design. This book examines emissions trading design, emissions trading implementation problems and how to address them.

Chapter 7: Implementation issue 3: Operational aspects of emission rights

Stefan E. Weishaar

Subjects: economics and finance, law and economics, environment, climate change, environmental law, law - academic, environmental law, law and economics


Emissions trading systems consist of rules relating to initial allocation, trading and surrender. But this is only part of the story. There are other areas that ETS designers need to consider since an emissions trading system needs to be based on a wider framework of administrative rules and systems that allow it to function in the first place. This chapter addresses issues arising in the context of those systems that enable an ETS to operate. Elements considered here relate to monitoring, reporting and verification (Section 2), state-owned enterprises (Section 3) and transaction logs (Section 4). Each is treated in turn. Monitoring, reporting and verification (MRV) are at the heart of the operation of any emissions trading system and a precondition for its functioning. Emissions trading systems are based on the surrendering of emission allowances in accordance with the particular obligations of individual emitters. In order to determine how many allowances must be surrendered, information on actual emissions is needed. This information is provided by the MRV process. Non-compliance with the surrender obligations generally results in sanctions that are capable of incentivizing future compliance. It goes without saying that, in order to allow for an orderly functioning of the emissions trading market, the market actors must have trust and confidence in its operational processes. MRV rules therefore respect important legal principles such as completeness, consistency, transparency, trust and truthfulness. Covered entities will generally be obliged to ensure that the determination of emissions is neither systematically nor knowingly inaccurate.

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