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Basic Information
Cap and trade is a market-based policy tool for protecting human health and the environment by controlling large amounts of emissions from a group of sources. A cap and trade program first sets an aggressive cap, or maximum limit, on emissions. Sources covered by the program then receive authorizations to emit in the form of emissions allowances, with the total amount of allowances limited by the cap. Each source can design its own compliance strategy to meet the overall reduction requirement, including the sale or purchase of allowances, installation of pollution controls, and implementation of efficiency measures, among other options. Individual control requirements are not specified under a cap and trade program, but each emission source must surrender allowances equal to its actual emissions in order to comply. Sources must also completely and accurately measure and report all emissions in a timely manner to guarantee that the overall cap is achieved.
A well-designed cap and trade program delivers:
- Greater environmental protection at lower cost
- Broad regional reductions, facilitating state efforts to address local impacts
- Early reductions, a result of allowance banking and market incentives
- Environmental integrity and transparent operations and results
- Fewer administrative costs to government and industry
- Efficiency and innovation incentives
- Incentives for doing better and consequences for doing worse
- Accounting for all emissions
- Partnership with existing requirements to ensure protection of the local population and environment
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Additional Resources
- Cap and Trade: Essentials (PDF) (2 pp., 179 K)
- Cap and Trade: Acid Rain Program Basics (PDF) (2 pp., 256 K)
- Cap and Trade: Multi-State NOx Programs (PDF) (2 pp., 259 K)
- Human Health and Environmental Effects of Emissions from Power Generation (PDF) (2 pp., 233 K)
- The Cap and Trade Success Story
- Cap and Trade Markets
- Emissions Monitoring
- Progress and Results