Cap-and-Trade Policy

Cap-and-trade is a system designed to reduce pollution by setting a limit (cap) on total emissions from certain industries. The government issues a fixed number of emission permits, which companies can buy and sell. If a company reduces its emissions below its allowance, it can sell the leftover permits to others. This creates a financial incentive for companies to cut pollution, as they can profit from selling permits. Over time, the overall cap lowers, encouraging continued environmental improvements. This market-based approach aims to balance economic activity with environmental responsibility.