emissions trading systems

Emissions trading systems (ETS) are market-based tools designed to reduce pollution by setting a cap on total allowable emissions. Companies receive or buy permits that grant the right to emit a certain amount of pollutants. If a company reduces its emissions below its permit level, it can sell the leftover allowances to others. This creates financial incentives to cut pollution, encouraging overall reduction cost-effectively. The cap ensures total emissions stay within environmental limits, while trading allows flexibility and innovation among businesses to meet targets efficiently.