International emissions trading under the Kyoto Protocol: credit trading

The Kyoto Protocol allows emissions trading between countries, The Protocol does however not specify how such trade is to take place, So far two optio ns have been discussed in the literature: government trading and permit tra ding, This paper discusses a third option: credit trading. Credit trading i s based on abatement projects, but differs from joint implementation in tha t it does not require direct foreign investment, Furthermore, credit tradin g can be implemented both domestically and internationally. The main advant ages of credit trading are that it excludes trading in hot air, while it st ill makes trade between private entities possible. However, the environment al effectiveness is doubtful, especially when it is based on relative targe ts. The paper shows that several interest groups prefer credit trading base d on relative targets to permit trading. Also governments may have reasons to prefer credit trading to permit trading, Hence, the political acceptabil ity of credit trading is larger than that of permit trading, making it more likely that credit trading will be allowed than permit trading, (C) 2001 E lsevier Science Ltd, All rights reserved.