The government would issue permits to emit carbon dioxide, and the number of permits each year would decline -- that's the cap part. Industry could then either invest in cleaner technology, or buy the permits from one another -- that's the trade.
Not only is a cap and trade plan supported by both Barack Obama and John McCain, it's central to both their energy plans.
Obama would make industry pay for the permits from the government at an auction, then use that money to fund a big push into renewable energy research. Other proposals in the Senate include giving the proceeds from such an auction to all households making under $100,000 a year.
McCain would not auction off the permits, at least at first. But he would rely on the rising price to pollute to spur private innovation in the energy sector.
Opponents of a cap and trade plan say it will be too costly for Americans already struggling with high energy prices. They also question whether it would have a meaningful impact in reducing greenhouse gasses. Some also say global warming poses little danger, although this is not the consensus among scientists.
NEXT: Creating an Apollo project for renewable energy
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