Cap And Trade

What is 'Cap And Trade'

Cap and trade is a regulatory system that is meant to reduce certain kinds of emissions and pollution and to provide companies with a profit incentive to reduce their pollution levels faster than their peers. Under a cap-and-trade program, a limit (or "cap") on certain types of emissions or pollutions is set, and companies are permitted to sell (or "trade") the unused portion of their limits to other companies that are struggling to comply.

BREAKING DOWN 'Cap And Trade'

President Obama proposed a cap-and-trade system to reduce carbon emissions during his 2008 presidential campaign. A similar cap-and-trade system was included in the 1990 Clean Air Act, which is viewed by many as being instrumental in reducing sulfur-related acid rain. Opponents of cap-and-trade systems come from both sides of the environmental debate: environmental activists argue it doesn't do enough, while business advocates argue that its impact on companies' profits is too great.

RELATED TERMS
  1. Carbon Trade

    An exchange of credits between nations designed to reduce emissions ...
  2. Absolute Pollution Exclusion

    A commercial liability insurance policy clause that removes coverage ...
  3. Water Quality Improvement Act Of ...

    Legislation that expanded the federal government's authority ...
  4. Carbon Credit

    A permit that allows the holder to emit one ton of carbon dioxide. ...
  5. Kyoto Protocol

    An international agreement that aims to reduce carbon dioxide ...
  6. Energy Tax

    A surcharge on fossil fuels such as oil, coal and natural gas. ...
Related Articles
  1. Entrepreneurship

    Make Sure Your Business Complies with These 3 Environmental Laws

    Discover why 1970 is considered the year of the environment, and learn about several major environmental laws with which businesses must comply.
  2. Stock Analysis

    HP and Intel Develop Climate Change Initiatives (HPQ, INTC)

    Leading tech companies, HP Inc and Intel Corporation, are vocal advocates for private sector’s responsibility to help reduce carbon emissions.
  3. Stock Analysis

    How Does the Volkswagen Scandal Affect GM? (GM, VOW.DE)

    Monitor the reaction of Chinese consumers to the Volkswagen emissions scandal. It could significantly boost the market share of General Motors in that nation.
  4. Investing News

    Neverending Lawsuits Line up in VW Emissions Case (VLKAY)

    The EPA is seeking billions in fines from VW for breaking emissions standards. Now, institutional investors are lining up to recoup lost VW stock value.
  5. Investing News

    Beijing Issues First-Ever Air Quality "Red Alert"

    On Monday, Beijing officials declared a "red alert," to last until midday Thursday (GMT). This is the highest warning level on a scale introduced in 2013, though this week's smog levels are far ...
  6. Economics

    Save The Earth: Become A Capitalist

    Who says that capitalism and environmentalism have to be mutually exclusive?
  7. Home & Auto

    What If They Can't Fix Your VW? (VLKAY)

    The latest news is that VW may not be able to fix the pollution controls to make those doctored cars meet U.S. environmental standards. Now what?
  8. Investing

    AirBnB Home-sharing is Good for the Planet

    New Airbnb study claims home-sharing is greener travel and can contribute to COP21 commitments for reduced GHG emissions in the United Stated and Europe.
  9. Economics

    Understanding Externality

    An externality is a consequence of an economic activity that is experienced by unrelated third parties.
  10. Investing News

    What the Paris Climate Deal Means for Investors

    The Paris climate change talks have wrapped up with a landmark agreement to stem the use of fossil fuels and reduce new CO2 emissions in order to keep global warming under 2.0 degrees Celcius ...
RELATED FAQS
  1. What is the carbon trade?

    The carbon trade came about in response to the Kyoto Protocol. Signed in Kyoto, Japan, by some 180 countries in December ... Read Answer >>
  2. How can individuals or businesses handle transaction costs for economic externalities?

    Find out how businesses can work with each other, their customers or third parties to help internalize external costs or ... Read Answer >>
  3. What is the best way to invest in small cap companies?

    Learn about the best ways to invest in small cap companies. Find out when small cap companies yield the highest return and ... Read Answer >>
  4. How does government regulation impact the oil & gas drilling sector?

    Find out how government regulation of the oil and gas sectors is often positive for the large companies, but may be negative ... Read Answer >>
  5. Are small cap companies a safer investment than large cap companies?

    Learn about the safety of small caps compared to large caps. Find out which key measures they differ on and which to pick ... Read Answer >>
  6. Who developed the theory of economic externality?

    Discover which economist developed the theory of economic externalities, and learn how and why some advocate for taxation ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center