Emissions trading is a market-based scheme for environmental improvement that allows parties to buy and sell permits for emissions or credits for reductions in emissions of certain pollutants.
Emissions trading allows established emission goals to be met in the most cost-effective way by letting the market determine the lowest-cost pollution abatement opportunities.
Under such a scheme, the Environment Protection Authority (EPA) first determines total acceptable emissions and then divides this total into tradeable units (often called credits or permits). These units are then allocated to scheme participants.
Participants that emit pollutants must obtain sufficient tradeable units to compensate for their emissions. Those that reduce emissions may have surplus units that they can sell to others that find emission reduction more expensive or difficult.
In suitable cases, trading schemes offer significant advantages over other regulatory approaches, both in certainty of environmental outcome and the potential to minimise overall compliance cost.
Load-based licensing (LBL) provides the administrative infrastructure for wider use of emission trading schemes in NSW, through its robust calculation and annual reporting procedures, under conditions of high public accountability.
Trading schemes broaden the cost-saving potential of LBL from individual premises to the control of emissions from whole groups of licensees.