What is 'Emissions Trading"? Discuss the use of Futures on Carbon Credits for mitigating risk of increasing costs in control of pollution.

Emissions trading, also known as cap-and-trade, is a market-based mechanism used to control pollution by providing economic incentives for reducing emissions of pollutants. It operates under a regulatory framework where a governing body sets a cap or limit on the total amount of certain greenhouse gases that can be emitted by covered entities. Tradable emissions allowances are then distributed or auctioned to firms, each representing the right to emit a specific amount of pollution (usually one ton of CO₂ or its equivalent). Firms that reduce their emissions below their allowance can sell excess permits to others who are struggling to stay within their limits, ___ _______ __________ _________ _________ ______ _____ _______ _____ _________ ________.
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