Justin Dargin - Emissions trading platforms - Cap-and-trade
Justin Dargin - Emissions trading platforms - Cap-and-trade
Nearly every carbon emissions trading platform can be classified into one of three overarching categorieswhether CaT, carbon taxation or a hybrid scheme. While the mechanics differ for each program, the fundamental praxis is that all carbon schemes seek the commoditization of carbon. The easiest and least complicated model, based on administrative ease and operability, is the CaT system, which is also known as allowance or permit trading.
A CaT system, which is essentially an administrative approach to mitigating carbon emissions by providing economic incentives for achieving quantifiable reductions in the emissions of pollution, places limits (caps) on a specified number of emissions sources. Generally, a governmental body sets a limit or a "cap" that declines over time, and then allocates a sufficient number of permits to equal the cap. Each permit or allowance equals one metric ton of carbon dioxide equivalent
(tCo2e). Even though emissions from all entities covered by the cap may not exceed the maximum allowable volume in the aggregate, individually they may reduce its carbon emissions (theoretically) by the most cost efficient method.
To avoid paying the carbon price, carbon-intensive industries attempt to either become more efficient, invest in renewable energy technology, or transition to less carbon-intensive fuels, etc.Carbon emissions restrictions may apply to a specific emission point, a particular company, or they may form a comprehensive, equal reduction for all emitters. The central GHG regulatory body should be authorized to lower the GHG ceiling over time, to reduce total national emissions.
A CaT system allows participants to determine the most cost-effective approach to decreasing emissions, or in its absence, to purchase permits from emitters who successfully reduced their emissions. Proponents stress the market-friendly structure that allows environmental goals to be
met in the most cost-efficient manner. In theory, it allows those who can reduce emissions at the lowest cost to do so, thereby reducing pollution at the lowest cost to society.
CaT systems have been vulnerable to criticism over the years. Some skeptics allege that it allows individual emitters to avoid responsibility. Others allege that it would unleash economic havoc upon the country that establishes it. Each criticism assumes that a CaT framework would pass additional costs to consumers and increase prices of manufactured products. This logic holds that an economy will begin a tailspin when consumers reduce spending and companies move to a less restrictive jurisdiction.14 In spite of the criticism, CaT is not only the least criticized of all schemes; it is viewed as the most effective process and one that makes environmental goals compatible with a market approach.
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