What is carbon trading?

It is a way to try get pollution limits into a capitalist economy. By carbon they mean pollution. In capitalist economies companies will pollute a lot if their is no cost associated with it. Say if the environment friendly equipment costs $100,000 verses if it is free to pollute then a company is likely to chose to pollute. So the government says if we catch you polluting too much we will fine you $200,000. Then the company would likely try buy the Equipment. So then you add carbon trading. The company's get the right to pollute a certain amount. The total is the limit we are willing to put up with. If a company pollutes more than their limit they have to buy some more rights to pollute from another company. So instead of paying their fine to the government at an arbitrarily set price, they are paying their fine to companies that aren't polluting (reward to them) and at prices based on supply and demand. Like if a lot of companies need to buy, the price to pollute extra is going to shoot really high and they are more likely to go buy that new equipment.