What is Cap-and-Trade?
Emissions allowance trading occurs when an emitter wants to voluntarily reduce its emissions or is forced to reduce emissions as a result of a cap-and-trade system, which places maximum limits on the amount of greenhouse gases an emitter or business sector may emit. Cap-and-trade systems force an emitter to purchase additional emission allowances from another emitter that is not emitting its maximum allocation of gases, or to mitigate its excess emissions by buying or generating greenhouse gas offsets from a project that is reducing emissions through some activity, such as agriculture, forestry, or injection of carbon dioxide underground.
