Emissions trading
Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants.[1] The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). One prominent example is carbon emission trading for CO2 and other greenhouse gases which is a tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.
This page is about emissions trading in general. For climate related concepts see Carbon price and Carbon emission trading.
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.[2] Polluters are required to hold permits in amount equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell them.[1][3][4][5][6]
Emissions trading is a type of flexible environmental regulation[7] that allows organizations and markets to decide how best to meet policy targets. This is in contrast to command-and-control environmental regulations such as best available technology (BAT) standards and government subsidies.
There are agents each of which emits pollutants.
There are locations each of which suffers pollution .
The pollution is a linear combination of the emissions. The relation between and is given by a diffusion matrix , such that: .
