![]() ![]() Emissions trading is a market-based approach to address pollution. ![]() An externality is an effect of some activity on an entity (such as a person) that is not party to a market transaction related to that activity. Pollution is a prime example of a market externality. This is in contrast to command-and-control environmental regulations such as best available technology (BAT) standards and government subsidies. Įmissions trading is a type of flexible environmental regulation that allows organizations and markets to decide how best to meet policy targets. Polluters that want to increase their emissions must buy permits from others willing to sell them. Polluters are required to hold permits in amount equal to their emissions. In an emissions trading scheme, a central authority or governmental body allocates or sells a limited number (a "cap") of permits that allow a discharge of a specific quantity of a specific pollutant over a set time period. Other schemes include sulfur dioxide and other pollutants. One prominent example is carbon emission trading for CO 2 and other greenhouse gases which is a tool for climate change mitigation. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Due to emissions trading, coal may become a less competitive fuel than other options.Įmissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. For climate related concepts see Carbon price and Carbon emission trading. This page is about emissions trading in general. ![]()
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