The Dictionary of the Climate Debate (DCD)

Cap and Trade
Definition: A policy approach to pollution control that uses economic incentives to achieve emissions reductions.

Here's how it works

A governmental body sets a limit (i.e., a cap) on how much of a pollutant you can emit. Polluters are issued emissions permits and an equivalent number of credits; the latter represent the right to emit a certain amount of a pollutant. The total amount of permits and credits cannot exceed the cap.

Those who need to increase their emissions must buy credits from those who are able to reduce them. This is the trade part. Over time, the cap is reduced more, thus overall pollution is reduced. Eventually, the optimum level is reached.

Right now, there are several active trading programs in pollutants; for greenhouse gases, the largest is the European Union Emission Trading Scheme.

The Music of Cap and Trade

Under my neighbourhood's proposed "party-on-down" carbon cap-and-trade regime, it will cost 4 carbon credits just to play this video - cause it's such a gas!

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