A. Definition

1

Directive 2003/87/EC gives a definition of allowance in the annex: (a) ‘allowance’ means an allowance to emit one tonne of carbon dioxide equivalent during a specified period, which shall be valid only for the purposes of meeting the requirements of this Directive and shall be transferable in accordance with the provisions of this Directive.

B. Transfer

I. Transfer

1

The transfer of permits is referred to as a trade. The transfer can be the same as trade in the sense that the allowances are being exchanged in a public market by private buyers and sellers. Anyone who can improve their production scale by reducing the greenhouse gas emissions can benefit from selling the surplus allowances in market at a price gaining from arbitrage.

II. Market places

2

Climate exchanges have been established to provide a spot market in allowances, as well as futures and options market to help discover a market price and maintain liquidity. 

3

Currently there are six exchanges trading in carbon allowances: the Chicago Climate Exchange (till 2010), European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange. 

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