Definition of “Cap and Trade Mechanisms” :
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“Cap and Trade Mechanisms” refer to a system designed to reduce environmental pollution. In this system, a limit or ‘cap’ is set on the amount of a pollutant that can be emitted. Companies or organisations are issued emission permits and are required to hold an equivalent number of allowances which represent the right to emit a specific amount. Firms that need to increase their emission allowance must buy credits from those who pollute less, thus encouraging businesses to reduce their pollution levels.
