To create an international market for pollution permits, governments would have to set quotas for allowed levels of emissions. Companies or countries unable to meet their quotas could buy credits through a trading exchange from others who have permits to spare. The mechanism will encourage the use of technologies such as wind power for which credits can be given.
The CBI argues for a set of principles to select appropriate economic instruments to deal with environmental problems on a case by case basis. As well as climate change, the principles are applied to landfill, water, quarrying, transport and clean air.
To help meet targets on carbon emissions agreed at Kyoto, the CBI favours internationally tradeable permits and, as part of this, advises the UK government to consider rebasing taxes in line with carbon intensities. But these measures must be developed in line with sound science and rigorous cost/benefit appraisal. Moreover, taxes should be revenue neutral. Other tools to help combat climate change would be regulation and voluntary initiatives. With the increasing number of environmental regulations emanating from Brussels, the CBI calls on the UK government to persuade the EU to adopt a similar set of principles to guide its objectives.