- The programme is a market-based system where the government sets a cap on emissions and allows industries to buy and sell permits to stay below the cap.
- Under the cap and trade system, the regulator first defines the total mass of pollution thatcan be put into the air over a defined period by all factories put together.
- Then, a set of permits is created, each of which allows a certain amount of pollution, and thetotal is equal to the cap.
- These permits are the quantity that is bought and sold. Each factory is allocated a share of thesepermits (this could be equal or based on size or some other rule).
- After this, plants can trade permits with each other, just like any other commodity on the NationalCommodity and Derivatives Exchange Limited (NCDEX).
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