Emissions trading aims to control pollution by providing economic incentives for companies and organizations which achieve reductions in the emissions of pollutants. A central authority, usually a governmental body, sets a limit (“cap”) on the amount of a pollutant that can be emitted. The companies cannot exceed the cap – they must limit total emissions to that level. If a company needs to increase their emission allowance, it must buy credits from those companies which pollute less. This transfer of allowances is referred to as a trade. The buyer pays a charge for polluting, and the seller is rewarded for reducing emissions by more than was needed. Those who can reduce emissions most cheaply will do so and are rewarded for it.
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