cap and trade
KAP and TRAYD
kæp ænd treɪdListen
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Syllable breakdown
Dictionary meaning
a market-based environmental regulation that sets a declining total limit (cap) on greenhouse gas emissions across a sector or economy, and allows companies to buy and sell (trade) emission allowances within that cap; firms that reduce emissions below their allowance can sell surplus permits to higher-emitting competitors; the EU Emissions Trading System (ETS) is the world's largest; contrasted with a carbon tax, which sets a price but not a quantity
Examples
- California's cap-and-trade system covers about 85% of the state's greenhouse gas emissions.
- Critics argue cap-and-trade creates 'hot spots' of pollution in low-income communities.
Synonyms: emissions trading scheme, ETS, emissions cap
Pronunciation tips
The key distinction: a carbon tax sets the price (but not the quantity of emissions); cap-and-trade sets the quantity (but not the price). Both are market-based tools.
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