Trading sulphur emissions in europe: "Guided bilateral trade'

In this paper a system of 'guided permit trading' is developed for SO2 emis sions reduction which considers permit trading as a bilateral and sequentia l process. This implies that in order to meet the deposition targets at the end of the trading process, not every single trade transaction has to meet the deposition targets. To ensure that the target is ultimately met, the n umber of permits traded should be controlled by a trade coordinating instit ution. A simulation of the system of guided bilateral trading of SO2 permit s among European countries on the basis of the Second SO2 Protocol indicate s that some non-profitable trade transactions take place. This prevents the cost effective emission allocation from being fully achieved. However, the calculations show that guided bilateral permit trading may generate substa ntial cost savings while contributing to environmental protection.