Will Cap-And-Trade Slow Climate Change?

The principle that polluters should pay for the waste they create has led many experts to urge governments to put a price on carbon emissions. One method is the sometimes controversial cap-and-trade. Quebec, California and the European Union have already adopted cap-and-trade, and Ontario will join Quebec and California’s system in January 2017. But is it a good way to address climate change?

The program sets an overall limit — a cap — on the amount of greenhouse gas emissions a province can emit. It then tells polluters, such as heavy industry and electricity generators, how many tonnes of carbon each can release. For every tonne, polluters need a permit or “allowance.” So, if a company’s annual limit is 25,000 tonnes, it would require 25,000 allowances. If a company exceeds its limit, it can purchase additional allowances from another firm that, because of its greater efficiency, has more allowances than it needs. This is the “trade” part of the equation.

Although an individual company can exceed its greenhouse gas limit by purchasing credits, the province as a whole can’t. The overall limit is reduced every year, so if the law is followed, cap-and-trade guarantees annual emissions reductions. The declining cap is the system’s great strength and the way it protects the environment.

How effective is it? Although the answer isn’t straightforward, there’s evidence cap-and-trade played a key role in reducing acid rain in the United States. The 1990 Clean Air Act allowed power plants to buy and sell the right to emit sulphur dioxide. Since then, U.S. sulphur dioxide concentrations have gone down by more than 75 per cent. As Nobel Prize-winning economist Paul Krugman wrote in the New York Times, “Acid rain did not disappear as a problem, but it was significantly mitigated.”

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