Emissions trading, also known as cap and trade, is a market-based approach to reducing emissions of pollutants. It involves setting a limit or cap on the total amount of emissions allowed from certain sources, such as power plants or factories. Companies are then given emission permits or credits equal to their allocated share of the cap. If a company can reduce its emissions below its allocation, it can sell any excess allowances to other companies that need more permits to meet their limits. This creates an economic incentive for companies to find ways to reduce their emissions and invest in cleaner technologies, while also ensuring that overall emissions are reduced to the desired level. Emissions trading is a key component of many national and international efforts to address climate change.