Cap & Trade
First tried in the United States, Cap and Trade is an economically efficient way of reducing pollutants. The benefit of Cap and Trade is that the total emissions are controlled and the emissions reductions are known in advance. The trading part of it sets a price for emissions and a market for their trade. In a more simple understanding, the ultimate goal of Cap and Trade is to reduce carbon dioxide and other greenhouse gas emissions economy-wide in a cost effective manner.
The idea of “cap” is that each large-scale company will be given a limit on how much greenhouse gas it can emit. The company must have an emissions permit for every ton of carbon dioxide it releases into the atmosphere. The reason for the permits is to set an enforceable limit, the “cap”, on how much greenhouse gas pollution that company is allowed to release. As time continues, the limit becomes stricter, allowing less and less pollution until the goal is met.
The “trade” allows companies to be able to sell their extra permits to companies that aren’t able to reduce easily. Some companies can reduce their emissions more easily than others, allowing these more efficient companies to help others. This plan is set so that everyone can guarantee some sort of reductions overall, and that the more efficient companies can ensure the cap is met at the lowest cost possible.
The idea of this system all begun in the 1990’s due to acid rain problems and concerns. Throughout time during the 90’s, SO2 and NOx were both subject to a Cap and Trade system that gave industries the option of taking on a new approach to control these emissions. Although it was a great success, and emissions dropped and the cost of reaching the goal was quite high, Margaret Taylor analyzed the data and explained it wasn’t so great of a success. “The implication is that CTP’s do not inherently provide sustained incentives for private sector R&D investments in clean technologies. And, in contrast t their intended goal, they do not reduce the uncertainty about the future cost of compliance, which would otherwise help industries plan their investments….For now, however, her research suggests that, while cap-and-trade works for lowering emissions, t may not guarantee the sustained market innovation that some of its proponents promise”.
Beyond Smoke and Mirrors – Burton Richter
http://www.americanprogress.org/issues/2008/01/capandtrade101.html