General notion: Mechanism in which an authority sets a limit or ’cap’ on the amount of a pollutant that can be emitted within a given timeframe by entities participating in the emissions trading scheme (this ’cap’ could e.g. follow from national QELROs under the Kyoto Protocol). The authority then assigns to each participating entity a number of emission credits or allowances, with each credit representing a license to emit one unit of the pollutant. The total numbers of credits assigned cannot exceed the cap. Entities whose emissions exceed the amount that was assigned to them, must buy additional credits to cover their actual emissions from those entities that have emitted less than their assigned amount, and thus have spare emission credits. This transaction is known as emissions trading. By allowing participants the flexibility to trade credits the overall emissions reductions are achieved in the most cost-effective way possible. (Also referred to as ’cap and trade’).For emissions trading as a mechanism under the Kyoto Protocol, see ’international emissions trading’.