Emissions trading scheme

Emissions Trading, also known as cap and trade is a government controlled marketing approach to control pollution. This is done by introducing a limit or cap on the amount of pollutants any one firm can emit by selling permits, which are bought by the firm to allow the right to emit the amount of permits in the form of greenhouse gasses. Firms that need to increase their emission permits must purchase permits from firms who require fewer permits, this is referred to as a trade.  This way the firms who need to increase their emission permits are charged to pollute opposed to the firms who are decreasing their emissions, which are rewarded and therefore aiming towards an emissions reduction target.