Cap And Trade Definition
Cap And Trade is the common
name of emissions trading. Being a market-based approach to control pollution
it provides economic incentives for achieving reductions in the emissions of
pollutants. A central authority defines a limit on the amount of a pollutant.
This cap is allocated to companies in the form of emissions permits. Firms need
to possess a number of permits equivalent to their emissions. Those that need
to increase their emissions can buy permits from those who require fewer
permits.