Approach

• Creates a cost-efficient way to put a price on carbon and addresses the lowest cost opportunities for reducing GHG emissions first.
• Empowers governments to place a limit on GHG emission, known as a "cap", which declines each year.
• Obliges regulated entities (emitters) to acquire emission allowances for each ton of GHG they release into the atmosphere. 
• Incentivizes businesses to reduce their GHG emissions as they can sell or “trade” any unused allowances. 
• Gives businesses the flexibility on how to comply with the programs, whether to invest in onsite emissions reductions activities, or acquire allowances.
• Achieves jurisdiction environmental goals in flexible and cost-effective ways.
• Investment of auction proceeds fund programs that further reduce greenhouse gas emissions and address climate equity.
  

By implementing independent emissions trading programs, through specific state or provincial regulations, each Participating Jurisdiction:

• Issues emission allowances and set an economy-wide emission cap consistent with its jurisdiction-specific GHG emission reduction targets.
• Progressively lowers emissions and achieves environmental goals through annually reducing caps.
• Holds periodic allowance auctions and reserve sales for registered, covered entities and voluntary participants.
• Allows trading of allowances, consistent with their laws, between and among registered covered entities and voluntary participants, as well as on the secondary market.
  
• Creates or eventually extends the regional allowance market in case of a program’s linkage with other jurisdictions’ programs, resulting in the recognition of one another’s allowances for compliance. 

Each emissions trading program relies on rigorous reporting and verification to ensure accurate and timely measurement and recording of GHG emissions.

• Consistent methods for emissions reporting, within a sector and across sectors, must be applied by covered entities and is subject to independent third-party verification from accredited auditors.
• Covered entities are required to turn into the state or province one “emission allowance” for each metric ton of carbon dioxide equivalent (CO₂e) emissions they emit and report.

Emission allowances can be traded between and among covered entities or third parties.

• Covered entities that reduce their emissions below the number of allowances they hold to cover their emissions can sell their excess allowances or hold them for later use.
• Selling excess allowances allows covered entities to recoup some of their emissions reduction costs while holding allowances for later use will lessen future compliance costs.
• Trading of emission allowances keeps compliance costs lower because it provides flexibility in how and when reductions are made. It also puts a price on the emissions, providing an incentive for businesses to innovate and find new ways to reduce emissions.

Each Participating Jurisdiction’s program design includes key features to ensure achievable and cost-effective emissions goals can be met.

• Emission offsets, representing emissions reductions from sources not covered by the program, can be used for compliance in limited quantity along with allowances from other trading programs that have been recognized by each Jurisdiction.
• There is no limitation on how long an emission allowance may be held for future use.
• Allowing covered entities to turn in allowances in three-or four-year periods, depending on jurisdiction, provides flexibility and accounts for annual variability.