Emission Trading Systems (Cap-and-Trade)

Emission Trading Systems, or Cap-and-Trade, are market-based approaches to controlling pollution. Authorities set a limit (cap) on total emissions allowed from certain industries. They issue a fixed number of permits, each permitting a specific amount of pollution. Companies can buy or sell these permits depending on their needs. If a company reduces its emissions, it can sell extra permits to others. This creates a financial incentive to lower pollution efficiently. Over time, the cap decreases, encouraging overall emission reductions. This system aims to balance economic activity with environmental responsibility by leveraging market mechanisms.