Tradable emissions permits are used in an environmental regulatory scheme where the sources of the pollutant to be regulated (most often an air pollutant) are given permits to release a specified number of tons of the pollutant. The government issues only a limited number of permits consistent with the desired level of emissions. The owners of the permits may keep them and release the pollutants, or reduce their emissions and sell the permits. The fact that the permits have value as an item to be sold gives the owner an incentive to reduce their emissions.
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