Contract-Based Trading Programs in Environmental Regulation

Emissions trading markets have been successful in addressing pollution problems where regulated entities can be treated in a similar manner and precise control of emissions quantities across time and space is not critical. In other situations, trading must account for individual circumstances, complexity, and the patchwork of existing regulations. In these circumstances trading systems have elements of contracts, in that transactions are unique and must be negotiated and approved individually. Such programs imply a high payoff to improved environmental information and to innovations in trading systems that allow making better use of such information. (JEL Q21 , Q25 , Q28 )