Emission trading scheme
An administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.
For example, the European Union Emissions Trading System (EU ETS) is a mandatory cap and trade scheme for Europe's heavy industries and power generators - the continent's major emitters of carbon dioxide.
They are required to monitor and report annually on their carbon dioxide emissions, and to buy and return an appropriate number of allowances each year.
This means that the polluter pays the current market price for their carbon dioxide emissions for the year.
- Emissions to fall as caps reduced
- "Emissions trading works by setting a cap on the total amount of greenhouse gases that can be emitted by polluters and issuing allowances accordingly.
- The cap [for a given polluter] is reduced over time so that [their] total emissions fall.
- Carbon allowances can be bought at auction and traded, and these markets determine the carbon price."
- Climate change A to Z - Financial Times.