A pollution permit (also called an emissions permit) is an official document issued by the government. It gives a company the legal right to release a specific amount of pollution into the environment.

These permits are used as a market-based tool to manage and reduce negative externalities, which are the harmful side effects caused by production.

Key features include:

• Companies must possess enough permits to cover their total amount of pollution.
• Permits can be bought and sold between companies in a secondary market.
• This system helps reduce pollution in the most cost-effective way.
• The government decides the total number of permits, which sets a clear limit on total pollution.