A market-based mechanism designed to reduce greenhouse gas emissions. Under this scheme, a cap is set on the total amount of emissions that can be released by covered entities, such as industries or power plants. Emission allowances are issued, each representing the right to emit a specific amount of greenhouse gasses. By creating a market for emission allowances, the ETS incentivizes emission reductions while providing flexibility for businesses to find the most cost-effective ways to comply with emissions targets.

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time frame.

A characteristic of a Voluntary Carbon Markets Credit. The underlying projects could not exist without the funding from the carbon credit. In other words, the projects wouldn’t be viable in their own right, all other things equal (regulations, government funding, other policies…). If credits are awarded to activities that would have happened anyways, the process becomes meaningless.