What Is a Cap & Trade System?

by BradN

Overview

"Cap and trade" is a system used in many countries to regulate pollution. The proposal of a cap and trade system to control green house gas emissions has spawned controversy in the United States.
Theory

The government sets a cap, or limit, for a pollutant. Companies that fall below the cap are then allowed to sell credits to companies that exceed the limit.

Benefits

Cap and trade is a popular regulatory tool because it allows industries a great deal of flexibility in how they can reduce pollution levels.
Current Uses in the U.S.

The U.S. currently uses a cap and trade system to regulate sulfur dioxide. Sulfur dioxide is a major contributor to acid rain.
Uses Abroad

Cap and trade systems are used in Europe, Australia, and New Zealand. The European Union currently has the world's largest cap and trade system to regulate greenhouse gasses.
Global Warming

H.R. 2454 passed the U.S. House of Representatives on June 26, 2009. The bill would regulate greenhouse gasses in the United States. Critics of the bill claim it is too costly to businesses.