<P> Under the ' cap and trade ' principle , a maximum ( cap ) is set on the total amount of greenhouse gases that can be emitted by all participating installations . `` Allowances '' for emissions are then auctioned off or allocated for free , and can subsequently be traded . Installations must monitor and report their CO emissions , ensuring they hand in enough allowances to the authorities to cover their emissions . If emission exceeds what is permitted by its allowances , an installation must purchase allowances from others . Conversely , if an installation has performed well at reducing its emissions , it can sell its leftover credits . This allows the system to find the most cost - effective ways of reducing emissions without significant government intervention . </P>
<P> Under the ' cap and trade ' principle , a maximum ( cap ) is set on the total amount of greenhouse gases that can be emitted by all participating installations . `` Allowances '' for emissions are then auctioned off or allocated for free , and can subsequently be traded . Installations must monitor and report their CO emissions , ensuring they hand in enough allowances to the authorities to cover their emissions . If emission exceeds what is permitted by its allowances , an installation must purchase allowances from others . Conversely , if an installation has performed well at reducing its emissions , it can sell its leftover credits . This allows the system to find the most cost - effective ways of reducing emissions without significant government intervention . </P>
the european union emissions trading system works on what principle
the european union emissions trading system works on what principle
the ' cap and trade ' principle
the ' cap and trade ' principle