In emissions trading, individual permits allowing a certain amount of emissions are known as

• A. Cap-and-trade program
• B. Tradable emission allowance
• C. Emissions tax
• D. Pollution offset

Answer: (D)

In emissions trading, the right to emit a certain amount of pollutants is issued as an allowance. When these allowances can be bought and sold in a market, they’re called tradable emission allowances. They act as property rights so firms can trade to meet their emissions targets efficiently; the cap fixes the total emissions, while the trading market determines the cost of compliance.

The term cap-and-trade describes the whole program, not the individual permit itself. An emissions tax uses a per-unit tax to raise the price of emissions rather than issuing permits. A pollution offset is a separate credit used to counterbalance emissions, not the permit granted to emit.