This pricing mechanism was proposed by James Hansen (who also refers to it as Fee and Green Cheque). In summary:
A limit or cap is placed on greenhouse gases from certain sources; these sources are required to obtain permits to cover their greenhouse gas emissions and dividends from the sale of the permits are returned directly to consumers through rebates or tax credits to compensate for increased energy costs. The cap is typically placed on 'upstream' sources – like fossil fuel suppliers – to cover the carbon content of the fuels they distribute. Some limited trading may be allowed, but typically only among covered sources.
Canadian cap and Dividend is a market-based mechanism for reducing emissions from fossil fuels that combines the best qualities of the proposals promoted by Canadian political parties interested in meeting internationally recognized emissions reductions targets.