When the major environmental laws were debated in the early 1970s, polluters favored a standards-based regulatory approach to limit their expenses to emission controls. Emission allowance markets can begin from the pattern of pollutants permitted by existing regulations. If the allowance restrictions are the same, and the amount allocated is the same as what would have been auctioned, such a cap and trade system may be as efficient as an auction-initiated system. Once established, allowance markets can replace the regulatory, command and control mechanism as the primary basis for future emission allowance allocations. For budgetary and political reasons, including inertia, allowances are usually defined in ways that cause them to fall well short of private property.
Most allowances are revocable if emission reduction targets change, and revocations have occurred.
Regulatory baselines that determine when emission reductions are ''excess,'' and the basis for a tradable allowance, change. Regulators use such practices to try to achieve reduce emissions without having to spend taxpayer dollars to buy back allowances. Unfortunately, many critics of pollution trading are often misguided and counterproductive, in my opinion. Still, their arguments can be politically potent. Critics argue pollution trading is paying someone not to pollute, but they don't realize that the net result of implementing these strategies is that the environment benefits.