Enforcement
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Another significant, yet troublesome aspect is enforcement. Without effective MRV and enforcement the value of allowances is diminished. Enforcement can be done using several means, including fines or sanctioning those that have exceeded their allowances. Concerns include the cost of MRV and enforcement and the risk that facilities may be tempted to mislead rather than make real reductions or make up their shortfall by purchasing allowances or offsets from another entity. The net effect of a corrupt reporting system or poorly managed or financed regulator may be a discount on emission costs, and a (hidden) increase in actual emissions.
According to Nordhaus (2007, p. 27), strict enforcement of the Kyoto Protocol is likely to be observed in those countries and industries covered by the EU ETS. Ellerman and Buchner (2007, p. 71) commented on the European Commission's (EC's) role in enforcing scarcity of permits within the EU ETS. This was done by the EC's reviewing the total number of permits that member states proposed that their industries be allocated. Based on institutional and enforcement considerations, Kruger et al. (2007, pp. 130–131) suggested that emissions trading within developing countries might not be a realistic goal in the near-term. Burniaux et al.. (2008, p. 56) argued that due to the difficulty in enforcing international rules against sovereign states, development of the carbon market would require negotiation and consensus-building.
Read more about this topic: Emissions Trading