What Is Emissions Trading?
Emissions trading, sometimes referred to as “cap and trade” or “allowance trading,” is an approach to reducing pollution that has been used successfully to protect human health and the environment. Emissions trading programs have two key components: a limit (or cap) on pollution, and tradable allowances equal to the limit that authorize allowance holders to emit a specific quantity (e.g., one ton) of the pollutant. This limit ensures that the environmental goal is met and the tradable allowances provide flexibility for individual emissions sources to set their own compliance path. Because allowances can be bought and sold in an allowance market, these programs are often referred to as “market-based.”
Under the right circumstances, emissions trading programs have proven to be extremely effective. They can achieve substantial reductions in pollution while providing accountability and transparency by making the data available through systems such as EPA’s Air Markets Program Data (AMPD).