Cap and trade programs are being implemented in many countries and regions all over the world. A cap and trade program is a system that sets a “cap” limiting the amount of pollution a company, institution, or household can emit. The trade aspect of the program refers to a market where companies buy and sell allowances depending on if they will be over or under the cap. In essence, it’s a polluter-pays principle. Cap and trade allows the market to decide where emissions can be condensed with the lowest cost, while cutting down on the pollution that is causing climate change.
While reducing emissions is a big plus to the program, another incentive is the dollars it will generate; some say it could be in the billions! Money is generated by imposing heavy fines on companies that do not have enough allowances to cover all of its emissions, and by selling excess allowances from companies that have some to spare. This money, in most programs, would be used for other strategies to address climate change. Cap and trade can spur research and development of new clean innovations, bringing jobs and economic benefits in the growing global market for climate-friendly products benefiting researchers, entrepreneurs, and start-ups. Industries will be motivated to seek out and invest in new clean technologies to reduce their carbon costs.
Cap and trade has placed climate change on the agenda of many company boards and has started to open up a new international trade market. For instance, developed countries have enhanced technologies and innovations allowing them to sell and trade unneeded allowances with developing countries who need additional allowances. Many programs, such as the European Union’s, around the world are starting to link up to form an extended international market. Back in 2013 more than 40% of allowances were traded internationally from the European Union.
It is expected that cap and trade programs will be playing a much bigger factor now on many international businesses and will be seen more frequently. Make sure to read all the posts in this blog series to learn what other sustainability factors are currently effecting global business.