Cap-and-Trade System

A cap-and-trade system is an environmental policy designed to reduce pollution. It sets a limit (cap) on the total amount of greenhouse gases that can be emitted by companies. Each company receives or buys emission permits that allow them to emit a certain amount of pollution. If a company emits less than its limit, it can sell its extra permits to others that need them (trade). This creates a financial incentive for companies to reduce their emissions, as those that pollute less can profit from selling their unused permits. Ultimately, the goal is to lower overall emissions gradually.