Definition - What does Tradable Permits mean?
Tradable permits are instruments aimed at reducing pollution. A maximum permissible emission rate is determined by government and permits that allow for the production of a maximum emission are issued to industry players. These permits can subsequently be traded to firms that require more permits in order to continue their activities.
Safeopedia explains Tradable Permits
In the United States, the tradable permits system is used to govern carbon emissions and nitrous oxide. The system strives to reduce the overall emissions by industry and to incentivize the reduction of emissions. Thus, if a firm produces lower emissions than their permits allow for, they may trade these to organizations that need more permits. Those that reduce pollution, thus receive remuneration from firms that produce more pollutants. The system of tradable permits is applied in many countries and areas including the EU, New Zealand and Australia.