The market for carbon allowances

Question

Quizplus · Accepted Answer

In a cap and trade system, companies are allocated a certain number of carbon allowances that allows them to emit a certain level of carbon dioxide. If a company exceeds its allocated amount, it can buy additional allowances from other companies who have emitted less than their maximum allowance. This results in a heavier polluter buying allowances from a company with lower carbon output to continue their emissions, keeping the overall amount of carbon emissions in check. The market for these allowances is thus an important element of the cap and trade system.

The Market for Carbon Allowances