Definition of Cap And Trade



Cap and trade is a government system that puts a cap on the emission of carbon dioxide from industrial activities. Companies are granted limited permits each year to emit a calculated amount of carbon dioxide only. Companies who surpassed the caped amount allowed are taxed while companies who reduce their emissions under the cap level are given credits. They can either sell or trade off their credits to others.

 


Governments are reducing permits each year to encourage companies to adopt green alternative solutions to reduce carbon dioxide emissions. With a low number of permits, prices of permits are increasing which enables companies to invest in clean technology.


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