A cap-and-trade program (also known as Emissions trading) is an administrative approach used to protect the environment and human health by controlling amounts of pollution from a cluster of sources (Cap-and-Trade Programs). A governmental body sets a limit on the amount of CO2 emissions that can be emitted by a given source. This limit is referred to as the ‘cap.’ Industries are issued permits to emit an equivalent amount of CO2 emissions within those limits (or credits) which correspond to the allowable amount of emissions (Cap-and-Trade Programs). Total emissions cannot exceed the cap and the overall credits and allowances are limited to this level. Industries that need to exceed this level must therefore buy credits from those who emit less CO2. This transfer of credits and allowances is what is referred to as ‘trade.’ To all intents and purposes, the buyer pays for polluting, while the seller is rewarded for his efforts in reducing pollution below the set limits (Cap and trade 101).
Because the emissions trading program would make it expensive for industries to emit pollutants, these industries will be more inclined to invest in alternative, non-polluting, clean energy sources (Cap-and-Trade Programs). The program will also give producers a chance to gain from selling emissions credits that they do not use. Consequently, those who can cheaply ease CO2 emissions will be motivated to do so, making clean energy the gainful kind of energy.
The overall goal of cap-and-trade program is to curtail the cost of meeting a set target to reduce emissions. Cap-and-trade program is a government regulatory mechanism which requires a set limit to reduce emissions— aiming towards an emissions cutback target nationally (Cap and trade 101). This limit on emissions is enforceable by a central authority or a governmental body and it is regularly lowered over time. In other emissions trading systems, a fraction of all credits traded must be surrendered, resulting in reduced emissions each time a credit trade occurs (Cap and trade 101). After the government political process sets a cap, individual producers are granted the freedom to choose how they will reduce their pollution - including implementation of efficiency measures, and installation of emissions controls, among other options (The Cap and Trade Success Story). Failure to cut down on pollution is often punishable through a fine that increases production costs. Companies will therefore choose the least-costly means to meet the pollution regulation terms, while seeking to reduce the expensive emissions, leading to reduced emissions where the most economical solutions exist (Cap and trade 101). In many emissions trading programs, firms which do not pollute such as environmental groups may also participate through purchasing and retiring credits or allowances and hence driving up the price, resulting in reduced emissions each time a credit trade occurs (Cap and trade 101).
Several emissions trading programs have already been implemented. In 1990, the congress enacted one such program as part of the Clean Air Act, intended to reduce sulfur dioxide (SO2) gas emissions, which is the main contributor to acidic rain (Cap-and-Trade Programs). The program considerably reduced sulfur dioxide emissions. Environmentalists have long supported the cap-and-trade program establishment, which would force CO2 emitters to pay for emitting CO2 (Cap-and-Trade Programs). However, a carbon- tax plan has recently emerged as a more politically tenable arrangement to reduce emissions into the atmosphere while allowing manufactures to continue profiting (Cap-and-Trade Programs).
In June 2009, the House passed the American Clean Energy Security Act (commonly known as Waxman-Markey bill), which includes cap-and-trade program, intended to reduce carbon dioxide emissions as one of the chief contributor to global warming (Cap-and-Trade Programs). A version of the American Clean Energy Security Act (ACES) legislation is yet to be passed by the Senate before being signed into law by the President.
Defenders of this legislature argue that, even though it may not be perfect, the bill is the most remarkable attempt that the US government has ever made to address the issue of global warming (Harkinson). The advocates of this bill and environmental groups say that the Senate ought to pass this legislature immediately.