How do emissions trading systems benefit companies?

Emissions trading systems, also known as cap-and-trade programs, incentivize companies to reduce their greenhouse gas emissions in a cost-effective manner by allowing them to trade emission allowances. Under this system, a cap is set on the total level of emissions allowed, and companies are allocated or can purchase allowances for emissions.

When a company reduces its emissions below its allowance, it can sell its excess allowances to other companies that may be struggling to meet their limits. This trading creates a financial incentive for companies to innovate and find cheaper ways to reduce emissions, leading to overall reductions in pollution at a lower cost than if all companies were forced to reduce emissions uniformly. Therefore, the system promotes flexibility and encourages companies to invest in cleaner technologies and practices that can lead to economic and environmental benefits. By maximizing efficiency through trading, emissions trading systems help to drive down the costs associated with achieving environmental targets.