Should the Rules of Allocating Emissions Permits Be Harmonised?

Emissions trading is widely regarded as a cost-effective means of helping industrialized countries comply with their Kyoto emissions targets by ensuring that reductions in greenhouse gas emissions are made where they are least costly. If emissions trading among sub-national entities is authorized, the nest question is how industrialized countries' governments allocate their assigned amounts to sub-national entities within their countries. This paper first discuses grandfathering and auctioning allocation methods. The paper then argues that although certain elements of domestic trading schemes operating within an international trading framework need to be comparable across countries, in particular with respect to monitoring and enforcement, the allocation of permits does not fall into the category of harmonization. Instead, the paper argues that individual governments should be left free to devise their own ways of allocating emissions permits