Emissions trading

Emissions trading (also known as cap and trade) is a market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants.Ross Garnaut, lead author of the Garnaut Climate Change Review Emissions trading (also known as cap and trade) is a market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. A central authority (usually a governmental body) allocates or sells a limited number of permits to discharge specific quantities of a specific pollutant per time period. Polluters are required to hold permits in amount equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell them. Financial derivatives of permits can also be traded on secondary markets. Cap and trade (CAT) programs are a type of flexible environmental regulation that allows organizations and markets to decide how best to meet policy targets. This is in contrast to command-and-control environmental regulations (such as best available technology (BAT) standards and government subsidies). Various countries, states and groups of companies have adopted such trading systems, notably for mitigating climate change. There are active trading programs in several air pollutants. For greenhouse gases, which cause climate change, permit units are often called carbon credits. The largest greenhouse gases (GHG) trading program is the European Union Emission Trading Scheme, which trades primarily in European Union Allowances (EUAs); the Californian scheme trades in California Carbon Allowances, the New Zealand scheme in New Zealand Units and the Australian scheme in Australian Units. The United States has a national market to reduce acid rain and several regional markets in nitrogen oxides. Recent reduction in California's GHG emissions are not attributed to carbon trading but to other factors such as renewable portfolio standards and energy efficiency policies; the 'cap' in California has been and continues to be larger than actual emission rates. GHG emissions increased at more than half of industrial point sources regulated by California's cap and trade program from 2013 to 2015. In theory, polluters who can reduce emissions most cheaply will do so, achieving the emission reduction at the lowest cost to society. Cap and trade is meant to provide the private sector with the flexibility required to reduce emissions while stimulating technological innovation and economic growth.