Emission trading, or cap-and-trade programming, is a system that allows companies to buy and sell of GHG emission permits based on their own performance. To establish the system, first governments set an emission limit (a cap) for all companies in the industry to follow, and then distribute tradable emission units to such companies. Lower-emitting companies can sell or auction their unused emission units to higher-emitting companies, providing an economic incentive for companies to limit their emissions. Emissions trading is most often used to reduce carbon dioxide pollution, but it is also used to control other GHG gases such as methane, sulfur dioxides and nitrogen oxides.
