Cap-and-trade
ESG & GovernanceAn emissions trading system in which the government caps total emissions, issues allowances up to the cap, and lets companies trade them.
Each covered company must hold one allowance for each tonne it emits. Companies that cut emissions can sell spare allowances, and those that emit more must buy. The cap falls over time. The EU Emissions Trading System is the best-known example. Cap-and-trade gives certainty about total emissions but not about the price, which moves with supply and demand.
Related terms
From the research
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