QEHSEnvironment
Emissions trading
A market-based approach to controlling pollution by creating economic incentives for reducing emissions — cap-and-trade systems.
Emissions trading (cap-and-trade) is a regulatory mechanism where a government sets a cap on total emissions, allocates allowances to emitters, and allows trading of allowances. Emitters who reduce emissions below their allocation can sell surplus allowances; those who exceed must buy. The EU ETS (Emissions Trading System) is the world's largest carbon market. In the US, the Acid Rain Program (SO₂ and NOₓ trading) demonstrated that market mechanisms can achieve environmental goals at lower cost than command-and-control regulation.