Rising concentrations of greenhouse gases in the atmosphere have produced increases in the average temperature of the earth (global warming) over time that lead to erratic changes in weather that vary across places (climate change). Scientific consensus indicates that human activity is partially responsible for this growing ‘greenhouse effect’, and it is likely to have a variety of negative impacts on humans, wildlife and ecosystems. Rising sea levels associated with melting polar ice caps will displace coastal populations, primarily in developing and impoverished nations. Problems associated with higher temperatures, such as changes in weather patterns, pests, diseases and increases in other forms of pollution (for example, ground-level ozone) may significantly reduce agricultural productivity, threaten species, damage ecosystems and reduce the availability of water resources (Intergovernmental Panel on Climate Change 2014). Concern with climate change led to the negotiation of the 1992 United Nations Framework Convention on Climate Change (UNFCCC), the 1997 Kyoto Protocol and the 2001 Marrakesh Accords. These international agreements create the structure for a global cap and trade or ‘carbon market’ system designed to reduce greenhouse gas emissions. Theoretically, cap and trade systems provide flexibility to regulated companies to achieve compliance and create financial incentives for reductions in emissions beyond the required minimum. Thus, they differ significantly from traditional forms of ‘command and control’ regulation in which pollution limits are issued (command) and regulated entities are punished (control) for failure to meet those limits (Gunningham and Grabosky 1998). In mandatory carbon market systems, a governing body issues caps or maximum emissions levels to regulated entities, as well as emissions credits which are a ‘property like right’ to pollute a specified amount (Martin and Walters 2013). These emissions credits have a financial value and can be bought and sold, or ‘traded’, to achieve compliance (described in detail below).
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