EMISSIONS TRADINGA market-based approach to achieving environmental objectives that allows sources reducing emissions below their target to sell the excess reductions to offset emissions at another source.

Emissions tradingA market-based approach to achieving environmental objectives that allows sources reducing emissions below their target to sell the excess reductions to offset emissions at another source. is an attempt to control pollution and damage to the climate by giving individuals and businesses economic incentives to achieve pollutant emission reductions. This many include greenhouse gasesGases in the earth’s atmosphere that absorb and re-emit infra-red radiation. These gases occur through natural and human-influenced processes. Carbon dioxideA naturally occurring gas and one of the most abundant greenhouse gases in the atmosphere. Carbon dioxide is also a by-product of industrial processes, burning fossil fuels and land use changes., methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride are the 6 GHGs subject to emission reduction in the Kyoto Protocol. such as carbon dioxideA naturally occurring gas and one of the most abundant greenhouse gases in the atmosphere. Carbon dioxide is also a by-product of industrial processes, burning fossil fuels and land use changes., and emissions tradingA market-based approach to achieving environmental objectives that allows sources reducing emissions below their target to sell the excess reductions to offset emissions at another source. vehicles such as carbon credits.

How does emissions tradingA market-based approach to achieving environmental objectives that allows sources reducing emissions below their target to sell the excess reductions to offset emissions at another source. work?

An authority such as the government sets a clear limit on how much of a pollutant can be emitted into the atmosphere. This limit or cap is defined by international agreements and pre-defined limits. Because this cap has been agreed, the volume can then be sold to firms in the form of carbon credits or other emissions permits. This gives businesses the right to emit or discharge a set amount of a specific type of pollutant. For instance, if a company wishes to emit carbon dioxideA naturally occurring gas and one of the most abundant greenhouse gases in the atmosphere. Carbon dioxide is also a by-product of industrial processes, burning fossil fuels and land use changes., they must hold an equivalent number of permits.

So different companies need different emissions permits?

The total number of available permits must never exceed the defined limit. If a company needs to increase the number of emission permits that they hold they have to purchase permits from others who need less permits.

So these emissions are traded, how does that help the environment?

Effectively, the buyer of a carbon credit or equivalent emissions trade is paying a set charge to pollute the environment, by mitigating the change elsewhere. Therefore, those businesses that can lower their emissions in the cheapest way possible will choose to. This, in theory, means that pollution is reduced at the lowest possible cost to society.