Key Terms
Allocation: a method of distributing allowances to regulated sources.
Allowance: a limited authorization to emit a specific quantity (e.g., one ton) of a pollutant from a regulated source.
Allowance tracking system: an accounting system for a trading program that keeps track of account information, account holdings, and transactions.
Auction: a process in which regulated sources and/or other entities bid on allowances.
Banking: saving unused allowances for future compliance periods.
Bank recalibration: Minimizing the accumulation of saved allowances available for purchase.
Backstop emission rate: a rate-based emission limit applied to a regulated source in conjunction with a cap; generally used to ensure achievement of a specific air quality goal.
Cap (sometimes called a “budget” or “emissions limit”): total amount of tons that regulated sources collectively must meet to achieve the environmental goals of the program.
Compliance (sometimes called “true-up” or "reconciliation"): comparison of emissions and allowance holdings to determine compliance with the program.
Dynamic budget: a method of updating a cap based on changes in utilization (e.g., heat input or gross generation) of regulated sources participating in the trading program.
Emissions monitoring: complete and consistent accounting of emissions; many sources use continuous emissions monitoring systems (CEMS) or similar techniques.
Mass-based trading program: a policy approach in which overall mass emissions from a group of regulated sources are capped and regulated sources may trade allowances.
Rate-based trading program: a policy approach in which regulated sources can generate compliance instruments (i.e., credits or allowances) based on their emission performance (i.e., emission rate) and regulated sources may trade such allowances.
State assurance levels: a limit on how much a single state within a trading program can emit beyond its budget; generally used to ensure achievement of a specific air quality goal.