It sounds a bit like what might happen at a hat shop or maybe a college graduation, but cap and trade is really one of the most promising ideas for controlling the greenhouse gases that are causing global warming.
The "cap" part comes in not as a item of clothing but rather as a limit imposed by a government on how much of a particular greenhouse gas can be emitted by take your pick everyone in a particular industry; everyone in all industries, or even everyone in the country.
However it's set up, the idea is that the cap is gradually squeezed down over time, say by a certain percentage per year. So everyone who was putting out, say, carbon dioxide in Year 1 would have to put out somewhat less in Year 2, and so on.
This is easier for some folks than others, though. Maybe Factory # 1 figures out a way to capture most if its CO2 but Factory #2, making a totally different product, just can't do that.
That's where the "trade" part comes in. Factory #1 is now putting out a lot less CO2 than it's allowed to under the law. It can take the credits and sell some of them to Factory #2, which continues to produce as much CO2 as ever.
It's that last part that made a lot of environmentalists pretty leery when this system was put into effect to reduce another problem -- sulfur dioxide, a cause of acid rain. They argued that it amounted to a "permit to pollute."
And while that's true, the system did work very well, by most accounts. The amount of sulfur dioxide being produced in aggregate in the United States plummeted. A big advantage of this system over, say, just ordering everyone to make a cut of a certain percentage is that it gives those who figure out a way to cut emissions a reward. And it penalizes those who don't or can't but, crucially, doesn't completely put the laggards out of business.
It would be difficult if not impossible to totally rely on cap and trade for controlling global warming. For one thing, a lot of greenhouse gases come from cars, trucks and so forth and you can bet that shadetree mechanics are unlikely to do much about their cars' CO2 production. But there's another economic tool that might make those folks start reducing how much they drive and eliminating unnecessary trips. It's the other major economic tool that has emerged to control climate change the carbon tax.
For more info:
*US Industries Plead for Cleaner Air: www.forbes.com/business/2006/04/04/greenhouse-emissions-environment-cx_jh_0405green.html
*An Evaluation of Cap-and-Trade Programs for Reducing US Carbon Emissions by the Congressional Budget Office: www.cbo.gov/ftpdoc.cfm?index=2876&type=0
* How it works: www.ucsusa.org/publications/catalyst/page.jsp?itemID=27226959
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