There are currently no regulated limits on GHG emissions. Furthermore, Canada's federal, provincial and territorial ministers of energy and environment recently agreed to establish, by early 1999, a system for crediting verifiable early action to reduce greenhouse gas emissions against any future obligations. Participants in the GERT Pilot will be eligible for this recognition. Shares of this cap are then distributed to sources of emissions in the form of allowances. A source emitting less than its allowance may sell its surplus allowance to other sources.
Sources reducing their emissions below their baseline levels receive credits which can be sold.
Consider a manufacturer that uses fossil fuels in its production process and consequently releases significant amounts of GHGs. The manufacturer's options for reducing GHGs in its own operations might be costly. Among its other options are the following. It could pay a municipality to capture methane produced by the municipality's landfills, and that otherwise would be vented to the atmosphere. It could purchase emission reductions from a company that has undergone an energy efficiency retrofit of its operations.