Emissions allowances refer to a permit or certificate that represents the right to emit a specific amount of greenhouse gases into the atmosphere. These allowances are typically issued by governments as part of an emissions trading scheme, which is a policy tool used to regulate and reduce greenhouse gas emissions from various sources such as power plants, factories, and other industrial facilities.
Under this system, companies or organizations that emit less than their allocated amount of greenhouse gases can sell their unused allowances to those who exceed their limit. This creates a market-based incentive for industries to reduce their emissions below the level specified by regulators, while also encouraging investment in cleaner technologies and practices.
In summary, emissions allowances are legal instruments that enable regulated entities to meet their emission reduction targets within an emissions trading scheme, thereby helping to mitigate climate change.