Earth Protect Blog

CAP and TRADE WAY TO GO

Barbara Grady

Senior Writer

GreenBiz Group

Requiring organizations to pay a price on their carbon emissions is widely believed to be the only way to induce the world to significantly cut the amount released into the atmosphere. Republican former statesmen, liberal environmental groups, NASA scientists and large corporations all agree on this point.

Some favor so-called carbon taxes. But taxes are notoriously unpopular in the United States. So instead, the market-based system of "cap and trade" was the favored approach by some early adopters: the nine Northeastern states in the Regional Greenhouse Gas Initiative and California. Outside of the U.S., the European Union also launched a cap-and-trade emissions trading system, while carbon taxes have been imposed in about a dozen countries.

But lately, the scales are tipping to cap and trade. Some 50 jurisdictions have emissions trading systems in place. "Over 1 billion people live in those areas and that 1 billion will double when China launches the nationwide cap-and-trade," said Nathaniel Keohane, vice president for global climate at the Environmental Defense Fund.

And last week, California legislators gave bipartisan approval to a bill to extend the state's cap-and-trade program to 2030, which Gov. Jerry Brown signed into law Tuesday.

You could argue that after 27 years of conversations about cap and trade since the idea was first introduced during the George H.W. Bush administration, the system has found its moment. Even as the Trump administration dismantles environmental protections and dismisses climate as a liberal issue, more states and countries are taking action to curb emissions through cap-and-trade and even Republicans have voted to stem emissions this way.

California's bipartisan vote that included eight Republicans — and the fact that California's economy has flourished in the 4.5 years that cap and trade has been in place — may serve to galvanize support for building similar systems elsewhere.

"We think cap and trade as a mechanism is vitally important. It has proven itself here in California, and it’s helped to promote the viability of carbon reduction,” said Steve Malnight, senior vice president for policy and strategy at Pacific Gas & Electric utility.

The vote to extend cap and trade in California "maintains a cost-effective approach to achieving our climate goals," and at the same time "sends a signal to innovators around the world that California is open for business," he said.

The way cap and trade works is that regulators set emission caps on large emitters such as manufacturers and utilities but leave it up to them to figure out how to meet the cap or buy allowances to emit more than their cap. Efficient companies that reduce emissions below their caps can sell their extra allowances. Or allowances can be bought in state-run auctions.