Emissions trading is a comparatively new policy instrument which has recently been introduced to the existing governance structure of electricity systems in Europe. The development of emissions trading thus represents an innovation in its own right, an innovation in governance.
This chapter discusses emissions trading as an innovation in the context of the broader task of transforming electricity systems for sustainable development. We place a special focus on the various design options of emissions trading and their likely impact on the sustainable development of electricity systems. A short analysis of the innovation process that led to the currently observable policy practices demonstrates the intricacies of putting policy theory in practice. In conclusion, we draw together analysis of design options and innovation dynamics to discuss possibilities for shaping the innovation process of emissions trading with a view to exploiting the potentials of emissions trading for the sustainable development of electricity systems.