Emissions Trading - the Theory

 
 
 
 
 
Emissions trading is an approach designed to allow greenhouse gas emission reductions to be made in an economically efficient way.

An emissions trading scheme is a way of setting an overall target covering a group of organisations, and then letting those participants decide, in a flexible way, how to achieve their own target. Participants can either:

  • Meet their target by reducing their own emissions;
  • Reduce their emissions below their target and sell or bank the excess emission allowances; or
  • Let their emissions remain above their target, and buy emissions allowances from other participants.