Firms are set quotas on how much carbon dioxide they can produce per year, if they produce more than this allowance, then they buy an allowance from another firm that has not reached it’s quota on how much it can produce in one year! Get it? Emissions Trading is particularly suited to the emissions of greenhouse gases, the gases responsible for global warming, which have the same effect wherever they are emitted. Emissions of carbon dioxide - a greenhouse gas - are widely thought to be a key factor in global warming, increasing atmospheric temperatures around the world. The idea of the carbon-trading scheme was to raise the cost to firms of continuing to pollute while creating a market to give an incentive to become more environmentally efficient.
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