What does "emission trading" allow companies to do?

Emission trading is a market-based approach designed to incentivize the reduction of greenhouse gases. It allows companies to buy and sell allowances for a specified quantity of emissions. Each allowance represents the right to emit one ton of a specific greenhouse gas. Companies that can reduce their emissions below their allocated allowances are allowed to sell their surplus allowances to other companies that may be struggling to meet their limits. This flexible system encourages firms to invest in cleaner technologies and energy efficiency, as they can profit from selling excess allowances while ensuring that overall emissions stay within the regulatory limits.

The mechanism fosters a financial incentive for companies to minimize their environmental impact, making emission trading an effective tool for achieving broader climate goals in a cost-effective manner. This trading system operates under the principles of supply and demand, helping to establish a price for carbon emissions, which can signal to the market the need for investment in sustainability initiatives.

The other options do not accurately describe the central function of emission trading. While some companies might exchange environmental technologies or develop sustainability reports as part of their overall environmental management strategies, these actions do not capture the essence of what emission trading specifically enables. Additionally, implementing waste management practices is a crucial aspect of environmental compliance but is not related to the trading of emissions allowances.