The system known as cap and trade is designed to help manage the pollution created by businesses, with the goal of the cap and trade system to reduce or eliminate the overall pollution problem in a certain country, area of the country, or within an industry. There are many people who support the idea of cap and trade systems, saying that the advantages of coal and CO2 systems not only make economic sense but that cap and trade has been highly successful in regions where it has been implemented.
While cap and trade systems are only one of the choices for managing pollution and reducing dangerous emissions – like not driving a 7 passenger suv – the program has generated many proponents. The earliest success story for cap and trade programs was the reduction of carbon dioxide, a common greenhouse gas, which was the target of early cap and trade programs.
What is Cap and Trade
So what is cap and trade exactly? The cap and trade system starts when a government body sets a cap on pollution in an area, determining how much total pollution will be allowed. Companies in the area are issued credits which provide a limit to how much they can pollute. These limits are set based on the size of the company, the industry they are a part of, the best practices of that industry, and so forth. If one company produces less than it’s allotted share of pollution, it can trade the remaining credits with other companies.
For any company that regularly comes in below their cap, cap and trade systems can be a major boon to the business. Companies often sell extra credits which not only helps bring in additional income; it also gives companies an incentive to continue lowering pollution levels. Businesses that are unable to get pollution levels below the assigned cap are penalized under a cap and trade system because they have to purchase additional credits from other businesses. This gives companies a reason to continue reducing pollution levels by creating a de facto “fine” in the form of the purchase of additional pollution credits.
The goal of the cap and trade system is to make it clear to companies that they must reduce their emissions rate without resorting to fines for companies who have excessive emissions rate or forcing all businesses to reduce emissions by a certain amount. Cap and trade systems give local government and business the flexibility they need to keep business going as they continue encouraging economic growth. While cap and trade systems are most often aimed at reducing carbon emissions, there are many potential applications for a cap and trade system in the United States and beyond. Some proponents even suggest implementing a global cap and trade system which would aid developing countries and reduce overall world wide pollution.
While a cap and trade system requires significant regulation, it does provide the government with more options. Government monitoring of emissions is required to ensure that businesses are accurately reporting emissions, and companies that release dangerous substances into the air or water will still require additional action on the part of the government. However, a cap and trade system is the best way to reduce emissions and decrease pollution in an area while still encouraging a strong economic base for business.