For a cap and trade system??

Question

For a cap and trade system, what does this mean?

*A cap and trade tend to pass the quota rent to business.

Answer 1

Some authority sets a "cap", like 10,000 tons of sulfer dioxide per year.  

Somehow this gets rationed among all the polluters that want to spew it into the atmosphere.  

Someone sets up a market, where people can "trade".  I am allowed 100 tons, but will only use 90, so I sell 10 tons to somebody else and they can spew 10 tons more.

Answer 2

A cap is a maximum allowed release of green house emitting gases.

The trade part is that companies that are less efficient in their release of GHG (green house gases) can buy credits from greener companies that are & or offset them by certain reforestation programs, etc.

Environmental Defense Fund is a big proponent of this. It seems like it could be useful giving motivation to be more efficient in which companies can see their credits, however I see potential for corruption and would have to be watchdogged pretty closely.