Cap And Trade


DEFINITION of 'Cap And Trade'

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.


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.

  1. Carbon Dioxide Tax

    A tax on businesses and industries that produce carbon dioxide ...
  2. Energy Tax

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  3. Green Economics

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  4. Carbon Trade

    An exchange of credits between nations designed to reduce emissions ...
  5. Emissions Reduction Purchase Agreement ...

    A transaction that transfers carbon credits between two parties ...
  6. Carbon Credit

    A permit that allows the holder to emit one ton of carbon dioxide. ...
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  1. What is the carbon trade?

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