Emissions trading

Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants.[1] The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Carbon emission trading for CO
2
and other greenhouse gases has been introduced in China, the European Union and other countries as a key tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.

In an emissions trading scheme, a central authority or governmental body allocates or sells a limited number of permits that allow a discharge of a specific quantity of a specific pollutant over a set time period.[2] Polluters are required to hold permits in amount equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell them.[1][3][4][5][6]

Emissions trading is a type of flexible environmental regulation[7] that allows organizations and markets to decide how best to meet policy targets. This is in contrast to command-and-control environmental regulations such as best available technology (BAT) standards and government subsidies.