Cap-and-trade is an environmental policy designed to reduce greenhouse gas emissions. Under this system, a government sets a limit, or "cap," on the total amount of emissions allowed for certain industries. Companies are given permits that allow them to emit a specific amount of pollutants, and they can buy or sell these permits in a marketplace. If a company reduces its emissions below its allocated limit, it can sell its extra permits to other companies that need them. This creates a financial incentive for businesses to lower their emissions, promoting innovation and investment in cleaner technologies while maintaining economic flexibility.