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Governments restrict the amount of greenhouse gases that companies (power utilities, manufacturers, airlines, etc.) are allowed to emit by issuing certificates that allow only a specified amount of carbon emissions. Every year the total number of allowances is reduced. Companies are allowed to trade these certificates. Therefore this regulatory tool is called Cap & Trade.

If a company emits more carbon than allowed by the certificates issued to it, it must purchase additional certificates on the market. On the other hand, if the company successfully reduces its emissions it may sell the unused allowances to other companies.

Emissions trading is one of the tools of the Kyoto Protocol and is strictly regulated. In the European Union this regulated market is called EUETS (European Union Emissions Trading System) and the certificates EUAs (European Union Allowance Units).

Because of their high quality CERs are treated as equivalent to EUAs. This means that a company may acquire CERs instead EUAs to meet its emissions targets.

1 EUA = 1 CER = 1 ton of carbon.

VERs are not allowed in the regulated market.

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