Tightening the system: Central allocation of emission rights

A whole bundle of so-called „flexible mechanisms“ has been foreseen by the Kyoto Protocol in order to help industrial countries to fulfil their agreed reduction targets in the most costeffective way. Emission permits will act as the backbone of all market-orientated mechanisms. Therefore, their initial allocation to the market participants is crucial. The deposit-refund model of Central Allocation is an alternative to the distribution of emission permits actually discussed in the context of flexible mechanisms. A Climate Bank is proposed that issues permits equal to the aggregate budget of all Annex-B countries. The system of Central Allocation is aimed to achieve an equitable distribution according to real emission needs, a positive sanction for compliance and overall system integrity.