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Quantitative Finance · Glossary

What is Cap-and-trade, emission allowance?

Also known as: cap-and-trade · emission allowance

Definition 7.1 Markets III: Commodities, Energy and Crypto · Chapter 7 — Emissions and Environmental Markets

Cap-and-trade is a regulation that caps the total emissions of covered installations over a period, issues that many emission allowances (each a right to emit one tonne of CO2_2 or its equivalent), and requires every installation to hold and give up allowances for its emissions, leaving the allowances free to be traded.

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