Absolute Cap

An absolute-cap system sets a fixed ceiling on the total tonnes of CO₂-equivalent that all covered entities may emit in a given period. The cap declines over time, guaranteeing that aggregate emissions fall.

How it works

1. The regulator issues a finite pool of allowances equal to the cap.
2. Each allowance permits one tonne of CO₂e.
3. At the end of every compliance period, each firm must surrender enough allowances to cover its actual emissions.
4. Firms that emit less can sell their surplus allowances; firms that emit more must buy from others or face penalties.

Price implications

Because the quantity of allowances is fixed, the market price adjusts to equate supply and demand. A tighter cap means fewer allowances and a higher price, driving more abatement.

Contrast with intensity-based systems

Under an absolute cap the environmental outcome is certain — total emissions equal the cap. The cost, however, is uncertain: if abatement turns out to be expensive, prices spike. Intensity-based systems (like India CCTS) flip this trade-off: costs are more predictable, but total emissions depend on output growth.

In the simulator

When you choose Absolute cap mode, the game issues a fixed pool of allowances calculated from your cap settings. Players trade against that finite supply throughout the game, and prices emerge from the market.