The trading unit is the carbon allowance, which represents the right to draw 1 ton of carbon from a capped carbon budget. In compliance markets, a regulatory entity fixes a certain amount (the cap) of allowed emissions for the year (the budget), and industrial polluters need to purchase allowances equivalent to their emissions. There are only as many allowances as the budget allows: the supply is capped. It is a regulated market in the sense that buyers have an obligation to hold allowances in equivalence to their emissions. Allowances are standard units issued by the regulatory body.

The reduction of carbon emissions released by the combustion of a primary resource.

Indirect greenhouse gas emissions that occur as a result of an organization's activities but are not directly owned or controlled by it, including emissions from its supply chain, transportation, and use of products.