Carbon trading

A market mechanism designed to reduce greenhouse gas (GHG) emissions through the laws of supply and demand. GHG emitters are allowed a certain quantity of emissions, above which they are charged for each tonne of emissions. Companies which use less than their allowance can sell to companies which emit more than their allowance. The total amount of allowable emissions are reduced over time to decrease supply and increase prices, thus enhancing the incentive to reduce emissions. Also known as emissions trading or ‘cap and trade’.