Economics Carbon Trading Questions
The role of emissions trading systems in carbon trading is to create a market-based approach for reducing greenhouse gas emissions. These systems set a cap on the total amount of emissions allowed, and then allocate or sell permits to emit a certain amount of carbon dioxide or other greenhouse gases. Participants, such as companies or countries, can buy or sell these permits, allowing for flexibility in meeting emission reduction targets. This system incentivizes emission reductions by creating a financial value for reducing emissions and provides a mechanism for achieving cost-effective emission reductions across different sectors and regions.