Pollution credits are permits that allow companies to emit a certain amount of pollutants into the environment. Each credit typically represents one ton of emissions. Companies that reduce their emissions below their allotted amount can sell their excess credits to other companies that need them, creating a financial incentive to lower pollution levels. This system is part of a broader approach called cap-and-trade, which aims to limit overall emissions while allowing flexibility for businesses. By trading credits, companies can find the most cost-effective ways to reduce their environmental impact, ultimately contributing to cleaner air and water.