Emissions Trading

Emissions trading is a policy measure aimed at reducing pollution. Originally referred to as tradable pollution rights, it enables firms to trade the right to emit or discharge specified amounts of particular pollutants. It has been used to control sulfur dioxide (SO2) that contributes to acid rain, nitrous oxides and volatile organic compounds that contribute to smog, greenhouse gases, and nutrient discharges into waterways.

In cap-and-trade emissions trading, a limit is set for total amount of a specific pollutant, or set of pollutants, that are allowed to be emitted over a particular period—usually a year—by specific industries in a particular region. The limit or cap chosen is supposed to be within the estimated capacity of the environment to assimilate the pollutant (or at least a step ...