Under this model, the grid would be operated as a separate regulated entity while the generating units would operate in a competitive marketplace.

Emissions trading basically refers to the trading of emissions allowances (carbon credits) between one regulated entity and a less pollutive entity.

However, in almost all jurisdictions there are certain types of regulated entity which require a certain amount, or a certain proportion, of paid-up share capital to be licensed to trade.

This type of legislation relies on broad principles to articulate the outcomes to be achieved by the regulated entities.

In this way, principles-based regulation seeks to provide an overarching framework that guides and assists regulated entities to develop an appreciation of the core goals of the regulatory scheme.