Emissions trading

Emissions trading or cap and trade is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. It is a type of policy that allows companies to buy or sell government-granted allotments of carbon dioxide output. The term is sometimes used to refer to all international emissions trading schemes, including those that are mandatory, like the European Union Emission Trading Scheme.

Overview

Emissions trading schemes may be established as climate policy instruments to reduce greenhouse gas emissions. The overall goal of an emissions trading plan is to minimize the cost of meeting a set emissions target. In an emissions trading system, the government sets an overall limit or cap on emissions. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.

Types of Emissions Trading

There are two main types of emissions trading:

• Cap and Trade: Companies are set a cap on the amount of pollution they can produce. If they exceed this cap, they must buy allowances from other companies. If they do not use all their allowances, they can sell them to other companies.

• Baseline and Credit: Companies are given a baseline amount of pollution they can produce. If they produce less than this, they can sell the difference as credits to other companies.

Benefits of Emissions Trading

Emissions trading has several benefits:

• It provides a cost-effective way for industries to reduce their carbon footprint.
• It encourages companies to innovate and find new ways to reduce their emissions.
• It creates a financial incentive for companies to reduce their emissions.

Criticisms of Emissions Trading

Despite its benefits, emissions trading has also been criticized:

• Some argue that it allows big polluters to pay to continue polluting.
• Others argue that it can lead to job losses in industries that cannot afford to reduce their emissions.
• There are also concerns about the transparency and fairness of the trading schemes.

See Also

• Carbon pricing
• Carbon tax
• Climate change policy
• Greenhouse gas emissions

References

Emissions trading Resources
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