Cap-and-trade systems

Cap-and-trade systems are environmental policies used to reduce greenhouse gas emissions. A government sets a limit (cap) on the total amount of emissions allowed for certain industries. Companies are issued permits for a portion of these emissions, which they can trade with each other. If a company reduces its emissions below its limit, it can sell its extra permits to others that exceed theirs. This creates a financial incentive for companies to lower emissions, encouraging overall reduction in pollution while allowing flexibility in how each company meets its targets.