Cap and Trade: It's Not That Complicated

This post was written by Matt McDermott for Planet Greet, and a follow up to a post earlier this week on the differing impact of Cap and Trade on socio-economic classes.

In practice a cap and trade program for carbon emissions is a pretty complex thing, no doubt about it. It also can seem like a pretty wonky concept for the average person to pay much attention to. If fairly recent public polls are anything to go on, most Americans haven't the foggiest idea of what all the fuss is about.

With that in mind, and in light of President Obama's speech from the Oval Office last night, here's the most simple cap and trade definition I can give:

1. Government sets a limit on the total amount of pollution that is permitted to be emitted into the atmosphere. In terms of cap-and-trade in regards to climate change, that's carbon dioxide. That's the cap. Emissions above that level result in fines.
2. Permits then get distributed to industry for a given amount of pollution. They can either be auctioned off (better, but polluters don't so much like this), given away for free based on historic levels of pollution (seemingly rewarding polluting industries), or some combination of the those.

   In structuring the program you have to determine how big a polluter is before they are required to participate. Ideally you want to include all the big polluters, to stem pollution at the source, rather than micro-managing smaller industry and individuals.

   The idea is to set the initial allotment slightly below what's already being emitted -- the whole point of this is to reduce the amount of pollution, not just keep it at current levels.

3. If a company can reduce its pollution below the amount of credits it already has, it can sell those credits to some other company that's not doing so well in reducing theirs.


4. This system essential creates an economic market where polluters have financial incentive to reduce pollution in the form of spare credits which can be sold or traded.


5. Over time the cap can be reduced -- hopefully at predictable intervals so everyone can prepare for it -- further constraining the amount of pollution that industry can emit.

See, that wasn't so complex.

Keep in mind that cap and trade is just one policy mechanism available for reducing carbon emissions, even if it's the most popular one at the moment (even not being that popular with polluting industries and their Congressional supporters). Alternatives to cap and trade: A carbon tax or a cap and dividend program—each has some high-profile supporters.

More on Cap and Trade from Planet Green:
A Cap and Trade System Could Save US Families $900 a Year
Cap and Trade Explained in Under Four Minutes (Video)
Cap and Trade Won't Break the Bank: Climate Bill Would Actually Cut US Budget Deficit
Hansen Was Right: Cap and Trade Isn't the Solution