Investing in Energy: A Primer on the Economics of the Energy Industry

Cap and Trade

The concept behind cap and trade began as governmental attempts to reduce the greenhouse gases and carbon emissions in the atmosphere. Several global governments instituted various policies by which participants would commit to reducing their share of carbon emissions into the atmosphere. Industries such as the power, refining, and other heavy industries were identified as large emitters of carbon emissions. Heavy industry and sovereigns that agreed to participate had to make commitments to reduce pollutants into the atmosphere.

A global attempt to reduce carbon emissions was crafted under the United Nation's Kyoto Protocol. This pact consisted of formal guidelines agreed to by member countries to reduce their carbon emissions. ...