Cap and Trade

Cap and Trade

Emissions trading or cap and trade is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted. The limit or cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant. Firms that need to increase their emission permits must buy permits from those who require fewer permits. Ex: Acid Rain Program, Emission Reduction Market System by Illinois, Regional Greenhouse Gas Initiative by New York etc were some successful carbon emission control system implemented in US in last two decades. Recently in 2007, California State signed into the cap and trade program named California Global Warming Solutions Act which according to our information is successful in offsetting the carbon dioxide and other gases emission in California.

Cap and trade is another alternative approach to reduce the carbon emission in the world. Cap and trade, with baseline approach and carbon tax, are market approaches that put a price on carbon and other greenhouse gases and provide an economic incentive to reduce emissions, beginning with the lowest-cost opportunities. It means the factory that emits the gas above the baseline has to purchase credit from other factory that emits below the baseline. Thus, the carbon emission controlling works automatically as all companies would control gas and try to fall below the baseline instead of buying the credit from the other companies.