Emissions Trading
Whether voluntary or mandatory, emissions trading is an increasingly popular approach to emissions reduction. Emission trading is a market-based mechanism which aims to achieve environmental objectives at least cost. A central authority (usually a government agency) sets a limit or cap on the amount of greenhouse gases that can be emitted. Companies or other groups that emit CO2are given credits or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances. This transfer is referred to as a trade.
