365 Days of Climate Awareness 82 – Cap and Trade

Cap and trade is a system of limiting greenhouse gas emissions via market pricing, and it operates differently from how a tax does. Carbon taxes set a price per unit emitted, but no limit on emissions, counting on the profit motive in corporations to reduce output. Under cap and trade, the government sets a limit on overall emissions, and then assigns allowances within that limit to each individual company. Should the company emit less than its allowance, it is allowed to sell its remaining allowances to another company, at any price they agree to. Enforcement is via fines and other sanctions.

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Various forms of this policy have been in use since 2005. Several European countries entered a mutual cap-and-trade arrangement in that year, known as the Emissions Trading System (ETS). In 2013 several cities in China enacted their own program, and Mexico began one in 2020. In the United States the Waxman-Markey cap-and-trade bill died in the Senate in 2009, but 11 northeastern states now cooperate in the Regional Greenhouse Gas Initiative (RGGI). Likewise California, and the Canadian provinces of Quebec and Nova Scotia have formed the Western Climate Initiative (WCI) cap-and-trade system.

Specifics differ among them. The RGGI of the northeastern US focuses on power plants and carbon dioxide emissions specifically. The WCI covers a broader range of sources, including automobiles. A third domestic program, the Midwestern Greenhouse Gas Reduction Accord, has been abandoned by its member states. The EU ETS includes air travel and has helped bring about steadily declining greenhouse gas emissions, while adopting a complicated new adjustment system for when emission allowances become too common or too scarce.

Cap-and-trade, market-based regulation of various pollutants has been favored by some economists for some time as a more efficient–meaning less costly to business—method of regulating emissions. It is certainly true that business interests have tended to favor cap-and-trade over carbon taxes, when the choice cannot be avoided.

These signs individually might be hopeful, but meanwhile, global emissions have continued to increase. The apparent success of cap-and-trade on smaller, more localized bases is a hopeful indicator for its effectiveness worldwide, but the political will to enact such a widespread policy has never been in evidence.

Tomorrow: industries responsible for greenhouse gas emissions.

Be brave, and be well.