An approach in a cap and trade system by which emission allowances are distributed or "allocated" by the government to regulated entities at little or no cost. Such allocations can be based on a variety of policy factors but are generally tied to either a "grandfathering" approach based on past emissions in a base year or an "updating" approach based on more recent emissions data. The alternative to direct allocation is to sell allowances via an auction. A cap and trade program may use a combination of auction and allocation to distribute allowances. See also Carbon Reduction Commitment.