Generally*, a cap-and-trade system is a preferable way to reducing emissions as, say, to a carbon tax. A cap-and-trade system sets a 'cap', an identified maximum level of greenhouse gas emissions (GHG), and allows emitters to trade permits/certificates to reach firm GHG emission maximums set by the government. Certificates, the 'trade' part, create a market environment (the glories of capitalism- market competition ensures lowest cost to consumers) so firms under their allotted amount of emissions can 'sell' the unused emissions and firms over their allotted emissions can buy these credits to offset their pollution. Overall, the cap is achieved at the lowest cost which is a good thing for society.
There are really only a few other cap-and-trade programs in practice- the RGGI, Regional Greenhouse Gas Initiative, and the EU ETS, the European Union Emission Trading System. So, what California is doing is pretty exciting from an environmental economists perspective and I look forward to seeing, and hopefully being a part of, how it all plays out.
what do you think?
cheers,
lisa
*please note this is a very surface overview of a cap-and-trade system. I'll do a post that goes more in to depth soon.
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