Cap And Trade

AAA

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.

INVESTOPEDIA EXPLAINS '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 Dioxide Tax

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

    A surcharge on fossil fuels such as oil, coal and natural gas. ...
  3. Emissions Reduction Purchase Agreement ...

    A transaction that transfers carbon credits between two parties ...
  4. Green Economics

    A methodology of economics that supports the harmonious interaction ...
  5. Carbon Trade

    An exchange of credits between nations designed to reduce emissions ...
  6. Carbon Credit

    A permit that allows the holder to emit one ton of carbon dioxide. ...
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 Full Answer >>
  2. What constitutes a secondary market?

    A secondary market covers the trading of any good, commodity, security or asset after it has been issued or created. Although ... Read Full Answer >>
  3. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  4. How do changes in interest rates affect the spending habits in the economy?

    Changes in interest rates can have different effects on consumer spending habits depending on a number of factors, including ... Read Full Answer >>
  5. When is it better to use systematic over simple random sampling?

    Under simple random sampling, a sample of items is chosen randomly from a population, and each item has an equal probability ... Read Full Answer >>
  6. Which nations' economies have reserve ratios?

    Most developed economies require a reserve ratio for their banks and other depository institutions, though there are some ... Read Full Answer >>
Related Articles
  1. Active Trading

    Cheap Steps To Reduce Your Carbon Footprint

    Making small adjustments to your habits and lifestyle can have big payoffs.
  2. Bonds & Fixed Income

    Green Bonds: Fixed Returns To Fix The Planet

    Fixed-income investors are no longer left out of the green investing revolution.
  3. Economics

    Carbon Trading: Action Or Distraction?

    These credits claim to allow buyers to reduce their carbon footprints. Find out how.
  4. Insurance

    Reduce Your Carbon Tire Print

    Find out whether you should buy new, buy used or just make your machine a bit more green.
  5. Entrepreneurship

    Can Business Evolve In A Green World?

    Learn how global warming is starting to heat up America's corporate climate.
  6. Economics

    What Is a Giffen Good?

    A Giffen good is a product whose demand increases as its price increases, and falls when its price falls.
  7. Professionals

    Will Consumer Spending Save 2015?

    Consumer spending is considered an important number (and it is), but a savvy investor will always look at "why" rather than just "what." You should too.
  8. Economics

    Explaining Budget Surplus

    Budget surplus is an economic term describing a situation where revenue exceeds expenditures.
  9. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.
  10. Fundamental Analysis

    How is the Demand Schedule Calculated?

    A demand schedule is a table that lists the quantity demanded of a good at different price points.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!