Carbon trading is an administrative approach to controlling greenhouse gas emissions. It aims to provide economic incentives to companies to reduce emissions. It is also referred to as emissions trading and cap-and-trade.

Carbon trading has received mixed responses from the public, as well as the policy community, and there is a certain degree of skepticism that an economic tool will be able to transform heavy polluters into environmental champions.

In practice, a central authority (usually a governmental body, but some voluntary schemes are managed by private entities) sets a limit or cap on the amount of greenhouse gas emissions (expressed as a carbon dioxide [CO2] equivalent) that can be emitted. Companies covered by a cap-and-trade carbon trading scheme are issued emission allowances and are required to hold ...