What Is a Cap & Trade Policy?

Cap and trade refers to an environmental policy that places a mandatory cap on the air pollutants companies emit while allowing them different ways to comply with the requirements.

Purpose

• The goal of the policy, to control pollution and hold businesses accountable for emissions, also tries to encourage innovation and efficiency in controlling emissions.

Best Use of Policy

• Cap-and-trade programs work best where emissions tend to linger for longer periods and affect larger areas, in places with more polluters, financial markets and strong regulatory institutions and where investigators can take consistent and accurate measurements of emissions.

Power Generation

• The U.S. Environmental Protection Agency has concentrated cap-and-trade programs, such as the Acid Rain Program and Nitrogen Oxide Budget Trading Program, on companies that generate electricity because they produce such major air pollutants as sulfur dioxide and nitrogen oxides.

Acid Rain

• The Acid Rain Program has lowered sulfur dioxide emissions from power plants by 6.5 million tons since 1980. The EPA predicts levels will drop to 8.95 million tons in 2010, one-half of 1980 levels.

The Nitrogen Oxide Budget Trading Program

• Another cap-and-trade program, the Nitrogen Oxide Budget Trading Program, seeks to lower nitrogen oxide emissions from power plants and other large combustion sources in the heavily populated eastern United States.