In this regulatory scheme, every current polluting facility is given or may purchase on an open market an emissions allowance for each unit of a designated pollutant it emits. Operators can then install pollution control equipment, and sell portions of their emissions allowances they no longer need for their own operations, thereby recovering some of the capital cost of their investment in such equipment. The intention is to give operators economic incentives to install pollution controls.
The first emissions trading market was established in the United States by enactment of the Clean Air Act Amendments of 1990. The overall goal of the Acid Rain Program established by the Act is to achieve significant environmental and public health benefits through reductions in emissions of sulfur dioxide (SO) and nitrogen oxides (NO), the primary causes of acid rain. To achieve this goal at the lowest cost to society, the program employs both regulatory and market based approaches for controlling air pollution.