CapandTrade

Cap-and-trade is an environmental policy tool designed to reduce overall greenhouse gas emissions. It establishes a central authority, usually a government or international body, that sets a maximum allowable emissions level, known as a "cap," for specific industries or sectors. These caps are gradually lowered over time to encourage continuous emission reductions.

Under a cap-and-trade system, emission allowances are issued to participating entities, such as factories or power plants. These allowances grant the right to emit a certain amount of pollutants and can be bought and sold within the market. Companies that reduce their emissions below their allotted allowances can sell their excess allowances to others, creating a financial incentive to lower emissions cost-effectively. Conversely, entities exceeding their allowances must purchase additional permits or face penalties.

This market-based approach aims to achieve environmental goals at the lowest overall cost by leveraging economic incentives and competition. Cap-and-trade programs have been implemented in various regions, including the European Union Emissions Trading System (EU ETS), California's Cap-and-Trade Program, and regional initiatives in North America and Asia.

Critics of cap-and-trade argue that it may lead to hot spots of pollution, market manipulation, and can be complex to administer. Proponents contend it provides flexibility for businesses, fosters innovation in clean technologies, and effectively reduces emissions when properly regulated.

Overall, cap-and-trade is considered one of the key strategies for addressing climate change, balancing environmental objectives with economic considerations through a market-oriented framework.