Cap & Trade 101

Filed in archive US on October 28, 2009

© James Jordan


The fact that you're reading this blog at all tells me that you're probably at least a little familiar with Cap & Trade. But just in case you have problems explaining it to other people, or in case you have friends who don't know about it, VentureBeat recently published a short primer: Cap & Trade 101.

Cap & Trade is an idea and a legislative initiative.

Here’s the basic idea: A government agency (the Environmental Protection Agency in the U.S., one might assume) decides on an acceptable total for emissions of various pollutants, with emphasis on greenhouse gases, in absolute terms like metric tons, barrels, stones, drams, etc. (depending on where you are in the world). This total is then be divided into credits, which are sold by governments to polluting companies like tire manufacturers, utilities and major retailers. When the total or “cap” is reached, companies that have generated less emissions than their allotted credits are able to sell or trade their leftovers to other companies which, presumably, wish they had bought more.

Actually, part of Congress's goal in the US seems to be to keep the EPA out of it. And while the credits might be marketable (companies could sell them to each other) the current legislation looks to give the credits to companies for free (which would cap carbon emmission at current levels while minimizing the economic impact).

The article provides a good historical overview of the concept.