How cap-and-trade works
This is where the House bill comes in. Known as Waxman-Markey after its two sponsors, Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), the bill attempts to reduce greenhouse gas emissions through a system known as cap-and-trade.
Under a cap-and-trade plan, the government requires companies emitting large amounts of greenhouse gases to obtain a permit for each ton they emit each year.
Most of these companies are electricity generators, including big industry that generates its own power. The number of permits issued each year is then reduced. As the more limited supply of permits increases their price, companies can either pay to install cleaner equipment, fund carbon-offset projects like tree farms, or buy these permits on a secondary market from other companies that have cleaned up their operations and now have extra permits to sell.
The ultimate goal is to make fossil fuels, the main source of energy and of man-made carbon emissions, more expensive and low carbon technologies like wind, solar and nuclear more competitive.