What is Cap and Trade scheme?

Cap: A cap is a limit, a ceiling, a line in the sand. In a Cap and Trade scheme, the cap determines the maximum emissions permitted in a specified time period. So, if you wanted to achieve a 10% reduction in total scheme emissions from a baseline of 1,000, you would set the cap at 900, and allocate system participants their individual caps on whatever basis you felt fair. Trade: Where you give a product or service in exchange for some other product or service of value. In a Cap and Trade system, trading means that you can buy or sell permits to ensure you meet your cap. So if you had a cap of 900 and you reduced your emissions to 700, you can exchange those additional 200 units for something of value.

A Carbon Cap and Trade scheme is

a model of emissions trading that involves setting a limit, or cap, on the amount of greenhouse gases (GHG) participants can emit.  This cap is reduced over time consistent with an overall GHG emissions target. 

Carbon permits are made available in the carbon market up to the scheme cap.  Each permit represents one unit of carbon pollution.  Participants in the scheme must acquire carbon permits equal to the amount of carbon pollution they emit in a set period of time. 

Capping emissions puts a price on carbon pollution.  Participants must decide whether it is cheaper to reduce their emissions on site, or to emit and buy carbon permits from the market.  This allows participants to decide on the most cost-effective way of meeting their obligations within the overall scheme cap. 

 

Top