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Emissions trading is a creative market approach to reducing pollutant emissions by allowing entities to trade emission allowances or credits issued by the government. Also known as cap and trade, there are emissions trading systems in North America, Europe, China, Japan, and other countries, and more systems are under consideration.

Overall, pollution is capped under an emissions trading system, but the sources of the emissions are provided a measure of flexibility in achieving the necessary reductions in emission to reach the overall emissions standards. An entity operating within a pollution standard, which specifies the levels of specific pollutants that are allowed in the ambient air and water in a particular location or from specific sources, can sell or trade its credit or allowance to an entity ...

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