A US federal statute passed in 1963 and amended several times since then which regulates the type and level of pollutants that can be emitted into the atmosphere. In 1970, the administration and enforcement of the CAA was passed to the newly-created Environmental Protection Agency, and the EPA retains these powers to this day.

The CAA limits the amount and type of allowable emissions from devices ranging from large-scale generating facilities to privately-owned automobiles, and covers emissions ranging from carbon dioxide and sulfur dioxide (the primary pollutants produced in coal-fired energy generation) to chlorofluorocarbons (volatile chemicals such as freon used in cooling systems).

In an attempt to encourage increased voluntary reductions of emissions in industry, a novel system was added in the 1990s which assigns emissions allowances to businesses and industries, and invokes penalties for exceeding the allowance over a given period of time. Businesses can trade some or all of their emissions allowances as commodities on the open market. This allows companies which can cheaply reduce their emissions to sell parts of their unused allowance to firms which may find emissions reduction far more costly. The objective of this scheme was to encourage overall reductions in emissions by giving already-efficient businesses an incentive to improve their performance even more.

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