Which of the following is the best definition of cap and trade?

Question

Options

• ACompanies can trade emissions within an agreed limit.
• BCompanies can trade emissions within agreed timescales.
• CCompanies can trade emissions with an agreed price.
• DCompanies can trade emissions within a single region.

• A
  90% (26)
• B
  7% (2)
• C
  3% (1)

Explanation

Cap and trade works by setting a maximum ("cap") on total emissions, then allowing companies to buy and sell ("trade") allowances within that cap - making A correct because the defining feature is the fixed emissions limit, not a price, timeline, or geographic boundary.

Why the others are wrong:

• B is wrong because cap and trade is defined by an emissions quantity ceiling, not a time constraint - though implementation does occur over time periods, that's not the defining mechanism.
• C confuses cap and trade with a carbon tax, which sets a price on emissions; cap and trade lets the market determine the price through trading.
• D is wrong because cap and trade systems can operate across multiple regions or countries (e.g., the EU Emissions Trading System spans many nations).

Memory tip: Think of "cap" as a ceiling - once you know the ceiling is the key idea, the answer is always the one that mentions a limit, not a price, schedule, or location.

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