What is the concept of carbon trading?

Carbon trading is fundamentally a market-based approach to control pollution, specifically greenhouse gas emissions. The concept revolves around the idea of cap-and-trade systems where there is a limit (cap) set on the total emissions allowed for specific industries or sectors. Companies are allocated emissions permits that allow them to emit a certain amount of carbon dioxide and other greenhouse gases.

If a company reduces its emissions below its set limit, it can sell its excess permits to other companies that are exceeding their limits, thus creating a financial incentive to lower emissions. This trading aspect encourages companies to invest in cleaner technologies and emissions-reduction strategies, as they can profit from selling their unused allowances.

This method leverages market forces to create economic value from reducing pollution, thereby promoting innovation and efficiency in reducing overall emissions, ultimately aligning economic activity with environmental sustainability.