Cap and Trade: The Basics

What is cap and trade?

Carbon cap and trade uses a market based system to incentivize clean energy and ensure that we adopt the most affordable methods to reduce pollution.

Under cap and trade, major polluters will be required to purchase one carbon credit for every ton of pollution they produce. Credits can then be bought and sold amongst emitters. By slowly decreasing the number of carbon credits available on the market each year the government can gradually decrease the amount of carbon pollution being emitted by U.S. sources.

The carbon cap and trade model proposed in national climate change legislation is a larger version of the cap and trade system established by the Clean Air Act to regulate sulfur pollution and reduce acid rain. The sulfur cap and trade system achieved its pollution reduction goals three years ahead of schedule, at about a quarter of the expected cost.

Who will be impacted by the regulations?

The cap and trade system will only regulate America’s largest emitters of carbon pollution. Only sources that emit more than 25,000 tons of carbon pollution annually will be regulated. Over 98% of America’s businesses, including all farmers and nearly all small businesses will not be capped.

Cap and trade will still be effective at reducing carbon pollution because the 2% of American businesses that will be regulated are responsible for more than three-quarters of U.S. carbon emissions.

What is the time line?

The cap and trade system will gradually reduce carbon pollution allowing for a smooth transition to cleaner energy. However, it will also cut carbon pollution by the scientific levels necessary to prevent the worst effects of global warming.

The bill calls for gradually increasing percentage cuts in carbon pollution compared to 2005 levels:

  • 20% reduction by 2020
  • 42% reduction by 2030
  • 83% reduction by 2050

Why use carbon cap and trade instead of other methods?

Carbon cap and trade is the most economically and politically feasible way to ensure that we meet targeted reductions in carbon pollution quickly.

A cap and trade system carries less political baggage than a carbon tax and offers a more reliable and comprehensive method of reducing carbon pollution and stimulating investment in clean energy technology than working through the court system.