Emissions trading system
An emissions trading system is a market-based policy that sets an overall emissions cap and requires covered entities to surrender tradable allowances for their emissions. Entities that reduce emissions can sell surplus allowances, while those exceeding their allocation must acquire more, creating a financial incentive for reductions.
In simple terms
An emissions trading system limits the total amount of pollutants that can be released into the environment. Companies are given or must buy permits for each unit of pollution they produce. If a company reduces its emissions, it can sell its extra permits to others, creating a financial incentive to cut pollution. A carbon-neutral claim is a different type of assertion rather than a trading system.
Why it matters
It helps reduce air pollution and greenhouse gas emissions, which improves air quality and protects public health by incentivizing companies to lower their emissions. Emissions inventories that support implementation may use the GHG Protocol Corporate Standard.
Example
A power plant is given permits to emit 1,000 tons of carbon dioxide annually. If it reduces emissions to 800 tons, it can sell the remaining 200 tons of permits to another company that needs them, earning revenue while reducing pollution that contributes to climate change.
How it differs
Carbon-neutral claim
Emissions trading focuses on market mechanisms to reduce pollution, whereas regulatory programs like the Clean Air Act may impose mandatory standards without trading options.
References
Current status
- As of
- Issuer
- epa.gov
- Instrument or version
- Clean Air Power Sector Programs | US EPA
- Status
- This entry reflects the cited authoritative sources on the stated date. Check the issuer for later amendments, replacements, or implementation guidance.
Applicability: Applicability depends on the source's stated scope, edition, jurisdiction, eligibility rules, and implementation requirements; this dictionary entry does not determine whether a particular organization, activity, or transaction is covered.