Carbon quotas refer to the emission limits of carbon dioxide (CO₂) or other greenhouse gases set by the government or relevant regulatory agencies for enterprises, industries or countries. Each entity can only emit a certain amount of carbon within the specified quota. Emissions exceeding the quota need to purchase additional quotas through the carbon trading market, or meet the regulations by reducing emissions. The carbon quota system is a market mechanism for controlling and reducing greenhouse gas emissions, designed to help achieve climate change reduction targets.

The core principle of carbon quotas:
Setting emission limits: The government sets the total emissions allowed within a certain period of time based on the country or industry's emission reduction targets. These total amounts are then allocated to each company or institution as their carbon emission cap during that period.

Carbon trading market: If a company's actual emissions are lower than the allocated carbon quota, it can sell the excess quota to other companies whose emissions exceed the quota. Conversely, companies that exceed their emission limits need to purchase additional quotas from the market. This mechanism encourages low-emission companies to gain economic benefits by selling carbon quotas, while forcing high-emission companies to reduce emissions by paying more costs.

Incentive emission reduction: The carbon quota system incentivizes companies to find more efficient and low-carbon technologies and methods to reduce emissions by pricing carbon emissions, thereby achieving a gradual reduction in total emissions.