CapandTradeSysteme

Cap-and-trade systems are market-based mechanisms used to reduce greenhouse gas emissions by setting a cap on total emissions and allowing entities to buy and sell allowances that permit a given amount of emissions. They aim to convert environmental goals into a market signal, encouraging reductions where they are most cost-effective.

Under a cap, the regulator issues a limited number of emissions allowances for a specified period. An allocation process distributes allowances to participants, either through free allocation based on historical emissions or output, or through auctions. Firms that reduce emissions can sell surplus allowances to others, while those that exceed their cap must acquire additional allowances. Over time, the cap is tightened to lower total emissions. Compliance occurs on a fixed schedule, with penalties for non-compliance. Systems may also permit the banking of allowances for future use, adding flexibility.

Cap-and-trade programs vary in scope and design. Some cover large portions of the economy, such as the European Union Emissions Trading System (EU ETS), while others target specific sectors or regions (for example, California and the Regional Greenhouse Gas Initiative in the northeastern United States). Many programs allow the use of offsets, where verified emission reductions outside the capped sectors can count toward compliance, and some enable linking with other programs to create larger markets.

Proponents argue that cap-and-trade achieves emissions reductions at lower overall cost than command-and-control regulations and can generate public revenue through auctions. Critics point to price volatility, potential carbon leakage, administrative complexity, and distributional impacts on industries and consumers. The design and governance of a program, including monitoring, reporting, and verification, significantly influence its effectiveness.