This paper develops a model of emissions trading in which industrialized countries can exhibit a level of emissions which is more than their quota by buying emission permits from other industrialized countries (which use less than their quota) or "certified emission reductions" from developing...

We develop a policy model which unlike the Clean development Mechanism (CDM) allows the economic agents in developing countries to generate and sell "certified emission reductions" (CERs) through environmentally progressive investment. It is shown that such a system encourages investment in...