Cap and Trade

A system that limits total pollution and lets companies buy and sell permits to emit within that limit.

Under cap and trade, a regulator sets a shrinking overall limit, or cap, on emissions and issues permits up to that amount. Companies that cut pollution below their allotment can sell their spare permits to companies that need more, creating a market incentive to reduce emissions wherever it's cheapest to do so.

Under the region's cap and trade program, the utility sold its unused emissions permits to a company that needed more.