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- a ‘carbon market’ is established to trade ‘emissions’
- cap and trade schemes or
- credits that pay for, or offset GHG reductions
- a cap may be set on allowable emissions ie 26-28% below 2005 by 2030)
- emissions allowances (permits) up to the cap distributed or auctioned distribution of a % of ‘allowances’ (issuing free permits) is often used at the commencement of a scheme to give a ‘soft start’
- liable entities who do not have enough allowances must either:
- reduce emissions
- buy another entities spare permits
- buy ‘credits’ (offsets)
- entities with extra allowances/permits can sell them or (under some scenarios) bank them for future use