A Market for Pollution Emission Permits with Low Accuracy of Emission Estimates

Abstract

Uncertainties of pollution inventories are often high due to low precision of emission quantity assessments for many emitting sources. A good example is emission of greenhouse gases, where uncertainty of some sources may be as high as 40-100%, while uncertainty of other sources is as low as 2-3%. This discrepancy in uncertainty should be accounted for in compliance as well as in emissions trading, because the traded commodities have different quality. The compliance and emissions trading rules have been discussed in earlier papers by the present authors [14, 15, 16, 17]. In this chapter we focus on presentation of the idea of a market for emissions with so highly scattered uncertainties.