Emission trading or so called "Cap and Trade" is a market bases instrument to control the environment pollution by proving financial incentives for achieving reduction in emissions . Genesis of emission trading arises from US in early 90's. First time "cap-and-trade" was launched into system as part of the US Acid Rain Program in 1990 Clean Air Act. Officially it was considered as a paradigm shift in environmental policy. Since then, emission trading has taken a new shape and extended to cover many of other gaseous primary responsible for climate change.
The mechanism first sets an overall cap, or maximum amount of emissions per compliance period, for all sources under the program. The cap is chosen in order to achieve a desired environmental effect. Authorizations to emit in the form of emission allowances are then allocated to affected sources, and the total number of allowances cannot exceed the cap. Individual control requirements are not specified for sources; instead, sources report all emissions and then surrender the equivalent number of allowances at the end of the compliance period. Allowance trading enables sources to design their own compliance strategy based on their individual circumstances while still achieving the overall emissions reductions required by the cap
