Cap and Trade - Definition, glossary, details
This means there is a ‘cap’ on the total amount of certain
greenhouse gases that can be emitted from factories, power plants and other
installations in the country. At the beginning of each year, companies receive
emission allowances which can be sold or bought from one another as needed. One
allowance is equivalent to one tonne of CO2 that a holder is allowed to emit.
At the end of each year, each company must surrender enough
allowances to cover all its emissions. If a company has excess allowances it can
sell it to its peers who are short of allowances. The EU ETS has put a price on carbon emissions
and shown that it is possible to trade in greenhouse gas emissions. Thus ‘Cap
and Trade’ provides a platform for carbon trading.