Emissions trading

Market-based approach used to control pollution

This page is about emissions trading in general. For climate related concepts see Carbon price and Carbon emission trading.

Part of a series about

Environmental economics
Concepts

* Bright green environmentalism
* Circular economy
* Degrowth
* Eco commerce
* Eco-innovation
* Ecological economics
* Ecological modernization
* Ecotechnology
* Environmental enterprise
* Environmental finance
* Fiscal environmentalism
* Green accounting
* Green development
* Green economy
* Green growth
* Green job
* Green paradox
* Green recovery
* Green trading
* Marginal abatement cost
* Natural resource economics
* Pollution haven hypothesis
* Sustainable design
* Sustainable development
* Sustainable tourism
* Thermoeconomics

Policies

* Climate finance
* Carbon leakage
* Eco-investing
* Environmental pricing reform
* Environmental tariff
* Free public transport
* Green industrial policy
* Green politics
* Green New Deal
* Rail subsidies

Carbon price

* Carbon tax
* Carbon emission trading
* Carbon credit
* Carbon fee and dividend
* Carbon finance
* Carbon offset
* Ecotax
* Emissions trading
* Personal carbon trading
* Pigovian tax
* Social cost of carbon

Energy transition

* Sustainable energy
* Carbon neutrality
* Carbon-neutral fuel
* Environmental technology
* Feed-in tariff
* Fossil fuel phase-out
* Low-carbon economy
* Net metering
* Renewable energy commercialization
* 2000-watt society

Climate change

* Climate change mitigation
* Carbon footprint
* Food miles

* v
* t
* e

Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants.[1] The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Carbon emission trading for CO2 and other greenhouse gases has been introduced in China, the European Union and other countries as a key tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.

In an emissions trading scheme, a central authority or governmental body allocates or sells a limited number (a "cap") of permits that allow a discharge of a specific quantity of a specific pollutant over a set time period.[2] Polluters are required to hold permits in amount equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell them.[1][3][4][5][6]

Emissions trading is a type of flexible environmental regulation[7] that allows organizations and markets to decide how best to meet policy targets. This is in contrast to command-and-control environmental regulations such as best available technology (BAT) standards and government subsidies.

## Contents

* 1 Introduction
* 2 History
* 3 Economics of emission trading
* 3.1 Coase model
* 3.2 Equity
* 3.3 Trading
* 3.4 Incentives and allocation
* 3.5 Market and least-cost
* 3.6 Measuring, reporting, verification and enforcement
* 3.6.1 Pollution markets
* 3.7 International emissions trading
* 3.7.1 Example
* 3.7.2 Applying the economic theory
* 3.8 Prices versus quantities, and the safety valve
* 4 Comparison with other methods of emission reduction
* 4.1 Baseline and credit
* 4.2 Pollution tax
* 4.3 Command-and-control regulation
* 5 Trading systems
* 5.1 United States
* 5.1.1 Sulfur dioxide
* 5.1.2 Nitrogen oxides
* 5.1.3 Volatile organic compounds
* 5.2 China
* 5.3 Europe
* 5.4 Renewable energy certificates
* 6 Criticism
* 6.1 Distributional effects
* 6.2 Carbon Leakage
* 7 Linking
* 8 See also
* 9 References
* 10 Further reading
* 11 External links

## Introduction[edit | edit source]

File:Coal power plant Datteln 2 Crop1.png

A coal power plant in Germany. Due to emissions trading, coal may become a less competitive fuel than other options.

Pollution is a prime example of a market externality. An externality is an effect of some activity on an entity (such as a person) that is not party to a market transaction related to that activity. Emissions trading is a market-based approach to address pollution. The overall goal of an emissions trading plan is to minimize the cost of meeting a set emissions target.[8] In an emissions trading system, the government sets an overall limit on emissions, and defines permits (also called allowances), or limited authorizations to emit, up to the level of the overall limit. The government may sell the permits, but in many existing schemes, it gives permits to participants (regulated polluters) equal to each participant's baseline emissions. The baseline is determined by reference to the participant's historical emissions. To demonstrate compliance, a participant must hold permits at least equal to the quantity of pollution it actually emitted during the time period. If every participant complies, the total pollution emitted will be at most equal to the sum of individual limits.[9] Because permits can be bought and sold, a participant can choose either to use its permits exactly (by reducing its own emissions); or to emit less than its permits, and perhaps sell the excess permits; or to emit more than its permits, and buy permits from other participants. In effect, the buyer pays a charge for polluting, while the seller gains a reward for having reduced emissions.

Emissions Trading results in the incorporation of economic costs into the costs of production which incentivizes corporations to consider investment returns and capital expenditure decisions with a model that includes the price of carbon and greenhouse gases (GHG).

In many schemes, organizations which do not pollute (and therefore have no obligations) may also trade permits and financial derivatives of permits.[10] In some schemes, participants can bank allowances to use in future periods.[11] In some schemes, a proportion of all traded permits must be retired periodically, causing a net reduction in emissions over time. Thus, environmental groups may buy and retire permits, driving up the price of the remaining permits according to the law of demand.[12] In most schemes, permit owners can donate permits to a nonprofit entity and receive a tax deductions. Usually, the government lowers the overall limit over time, with an aim towards a national emissions reduction target.[8]

According to the Environmental Defense Fund, cap-and-trade is the most environmentally and economically sensible approach to controlling greenhouse gas emissions, the primary cause of global warming, because it sets a limit on emissions, and the trading encourages companies to innovate in order to emit less.[13]

There are active trading programs in several air pollutants. An earlier application was the US national market to reduce acid rain. The United States now has several regional markets in nitrogen oxides.[14] For GHG, which cause climate change, carbon emission trade has been introduced in the European Union, China, the UK, Australia, New Zealand, some US states including California and a collection of Northeastern states, and other countries.

## History[edit | edit source]

The efficiency of what later was to be called the "cap-and-trade" approach to air pollution abatement was first demonstrated in a series of micro-economic computer simulation studies between 1967 and 1970 for the National Air Pollution Control Administration (predecessor to the United States Environmental Protection Agency's Office of Air and Radiation) by Ellison Burton and William Sanjour. These studies used mathematical models of several cities and their emission sources in order to compare the cost and effectiveness of various control strategies.[15][16][17][18][19] Each abatement strategy was compared with the "least-cost solution" produced by a computer optimization program to identify the least-costly combination of source reductions in order to achieve a given abatement goal. In each case it was found that the least-cost solution was dramatically less costly than the same amount of pollution reduction produced by any conventional abatement strategy.[20] Burton and later Sanjour along with Edward H. Pechan continued improving[21] and advancing[22] these computer models at the newly created U.S. Environmental Protection Agency. The agency introduced the concept of computer modeling with least-cost abatement strategies (i.e., emissions trading) in its 1972 annual report to Congress on the cost of clean air.[23] This led to the concept of "cap and trade" as a means of achieving the "least-cost solution" for a given level of abatement.

The development of emissions trading over the course of its history can be divided into four phases:[24]

1. Gestation: Theoretical articulation of the instrument (by Coase,[25] Crocker,[26] Dales,[27] Montgomery[28] etc.) and, independent of the former, tinkering with "flexible regulation" at the US Environmental Protection Agency.
2. Proof of Principle: First developments towards trading of emission certificates based on the "offset-mechanism" taken up in Clean Air Act in 1977. A company could get allowance from the Act on a greater amount of emission when it paid another company to reduce the same pollutant.[29]
3. Prototype: Launching of a first "cap-and-trade" system as part of the US Acid Rain Program in Title IV of the 1990 Clean Air Act, officially announced as a paradigm shift in environmental policy, as prepared by "Project 88", a network-building effort to bring together environmental and industrial interests in the US.
4. Regime formation: branching out from the US clean air policy to global climate policy, and from there to the European Union, along with the expectation of an emerging global carbon market and the formation of the "carbon industry".

In the United States, the acid rain related emission trading system was principally conceived by C. Boyden Gray, a G.H.W. Bush administration attorney. Gray worked with the Environmental Defense Fund (EDF), who worked with the EPA to write the bill that became law as part of the Clean Air Act of 1990. The new emissions cap on NOx and SO2 gases took effect in 1995, and according to Smithsonian magazine, those acid rain emissions dropped 3 million tons that year.[30]

In 1997, the Kyoto Protocol was the first major agreement to reduce greenhouse gases. 38 developed countries (Annex 1 countries) committed themselves to targets and timetables.[31]

## Economics of emission trading[edit | edit source]

It is possible for a country to reduce emissions using a command-and-control approach, such as regulation, direct and indirect taxes. The cost of that approach differs between countries because the Marginal Abatement Cost Curve (MAC)—the cost of eliminating an additional unit of pollution—differs by country.

### Coase model[edit | edit source]

Coase (1960)[32][33] argued that social costs could be accounted for by negotiating property rights according to a particular objective. Coase's model assumes perfectly operating markets and equal bargaining power among those arguing for property rights. In Coase's model, efficiency, i.e., achieving a given reduction in emissions at lowest cost, is promoted by the market system. This can also be looked at from the perspective of having the greatest flexibility to reduce emissions. Flexibility is desirable because the marginal costs, that is to say, the incremental costs of reducing emissions, varies among countries. Emissions trading allows emission reductions to be first made in locations where the marginal costs of abatement are lowest (Bashmakov et al., 2001).[34] Over time, efficiency can also be promoted by allowing "banking" of permits (Goldemberg et al., 1996, p. 30). This allows polluters to reduce emissions at a time when it is most efficient to do so.

### Equity[edit | edit source]

One of the advantages of Coase's model is that it suggests that fairness (equity) can be addressed in the distribution of property rights, and that regardless of how these property rights are assigned, the market will produce the most efficient outcome.[35] In reality, according to the held view, markets are not perfect, and it is therefore possible that a trade off will occur between equity and efficiency (Halsnæs et al., 2007).[36]

### Trading[edit | edit source]

In an emissions trading system, permits may be traded by emitters who are liable to hold a sufficient number of permits in system. Some analysts argue that allowing others to participate in trading, e.g., private brokerage firms, can allow for better management of risk in the system, e.g., to variations in permit prices (Bashmakov et al., 2001).[37] It may also improve the efficiency of system. According to Bashmakov et al. (2001), regulation of these other entities may be necessary, as is done in other financial markets, e.g., to prevent abuses of the system, such as insider trading.

### Incentives and allocation[edit | edit source]

Emissions trading gives polluters an incentive to reduce their emissions. However, there are possible perverse incentives that can exist in emissions trading. Allocating permits on the basis of past emissions ("grandfathering") can result in firms having an incentive to maintain emissions. For example, a firm that reduced its emissions would receive fewer permits in the future (IMF, 2008, pp. 25–26).[38] There are costs that emitters do face, e.g., the costs of the fuel being used, but there are other costs that are not necessarily included in the price of a good or service. These other costs are called external costs (Halsnæs et al., 2007).[39] This problem can also be criticized on ethical grounds, since the polluter is being paid to reduce emissions (Goldemberg et al., 1996, p. 38).[35] On the other hand, a permit system where permits are auctioned rather than given away, provides the government with revenues. These revenues might be used to improve the efficiency of overall climate policy, e.g., by funding energy efficiency programs (ACEEE 2019)[40] or reductions in distortionary taxes (Fisher et al., 1996, p. 417).[41]

In Coase's model of social costs, either choice (grandfathering or auctioning) leads to efficiency. In reality, grandfathering subsidizes polluters, meaning that polluting industries may be kept in business longer than would otherwise occur.[citation needed] Grandfathering may also reduce the rate of technological improvement towards less polluting technologies (Fisher et al., 1996, p. 417).

William Nordhaus argues that allocations cost the economy as they cause the under utilisation an efficient form of taxation.[42] Nordhaus argues that normal income, goods or service taxes distort efficient investment and consumption, so by using pollution taxes to generate revenue an emissions scheme can increase the efficiency of the economy.[42]

Form of allocation

The economist Ross Garnaut states that permits allocated to existing emitters by 'grandfathering' are not 'free'. As the permits are scarce they have value and the benefit of that value is acquired in full by the emitter. The cost is imposed elsewhere in the economy, typically on consumers who cannot pass on the costs.[43]

### Market and least-cost[edit | edit source]

> Economy-wide pricing of carbon is the centre piece of any policy designed to reduce emissions at the lowest possible costs.

Ross Garnaut, lead author of the Garnaut Climate Change Review[44]

Some economists have urged the use of market-based instruments such as emissions trading to address environmental problems instead of prescriptive "command-and-control" regulation.[45] Command and control regulation is criticized for being insensitive to geographical and technological differences, and therefore inefficient;[46] however, this is not always so, as shown by the WWII rationing program in the U.S. in which local and regional boards made adjustments for these differences.[47]

After an emissions limit has been set by a government political process, individual companies are free to choose how or whether to reduce their emissions. Failure to report emissions and surrender emission permits is often punishable by a further government regulatory mechanism, such as a fine that increases costs of production. Firms will choose the least-cost way to comply with the pollution regulation, which will lead to reductions where the least expensive solutions exist, while allowing emissions that are more expensive to reduce.

Under an emissions trading system, each regulated polluter has flexibility to use the most cost-effective combination of buying or selling emission permits, reducing its emissions by installing cleaner technology, or reducing its emissions by reducing production. The most cost-effective strategy depends on the polluter's marginal abatement cost and the market price of permits. In theory, a polluter's decisions should lead to an economically efficient allocation of reductions among polluters, and lower compliance costs for individual firms and for the economy overall, compared to command-and-control mechanisms.[48][9]

### Measuring, reporting, verification and enforcement[edit | edit source]

This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (September 2009) (Learn how and when to remove this template message)

|

Assuring compliance with an emissions trading scheme requires measuring, reporting and verification (MRV).[49] These measurements are reported to a regulator. For greenhouse gases, all trading countries maintain an inventory of emissions at national and installation level; in addition, trading groups within North America maintain inventories at the state level through The Climate Registry. For trading between regions, these inventories must be consistent, with equivalent units and measurement techniques.[50]

In some industrial processes, emissions can be physically measured by inserting sensors and flowmeters in chimneys and stacks, but many types of activity rely on theoretical calculations instead of measurement. Depending on local legislation, measurements may require additional checks and verification by government or third party auditors, prior or post submission to the local regulator.

Enforcement methods include fines and sanctions for polluters that have exceeded their allowances. Concerns include the cost of MRV and enforcement, and the risk that facilities may lie about actual emissions.

#### Pollution markets[edit | edit source]

An emission license directly confers a right to emit pollutants up to a certain rate. In contrast, a pollution license for a given location confers the right to emit pollutants at a rate which will cause no more than a specified increase at the pollution-level. For concreteness, consider the following model.[28]

* There are  n {\displaystyle n} agents each of which emits  e i {\displaystyle e_{i}} pollutants.
* There are  m {\displaystyle m} locations each of which suffers pollution  q i {\displaystyle q_{i}} .
* The pollution is a linear combination of the emissions. The relation between  e {\displaystyle e} and  q {\displaystyle q} is given by a diffusion matrix H {\displaystyle H} , such that:  q = H ⋅ e {\displaystyle q=H\cdot e} .

As an example, consider three countries along a river (as in the fair river sharing setting).

* Pollution in the upstream country is determined only by the emission of the upstream country:  q 1 = e 1 {\displaystyle q_{1}=e_{1}} .
* Pollution in the middle country is determined by its own emission and by the emission of country 1:  q 2 = e 1 + e 2 {\displaystyle q_{2}=e_{1}+e_{2}} .
* Pollution in the downstream country is the sum of all emissions:  q 3 = e 1 + e 2 + e 3 {\displaystyle q_{3}=e_{1}+e_{2}+e_{3}} .

So the matrix  H {\displaystyle H} in this case is a triangular matrix of ones.

Each pollution-license for location  i {\displaystyle i} permits its holder to emit pollutants that will cause at most this level of pollution at location  i {\displaystyle i} . Therefore, a polluter that affects water quality at a number of points has to hold a portfolio of licenses covering all relevant monitoring-points. In the above example, if country 2 wants to emit a unit of pollutant, it should purchase two permits: one for location 2 and one for location 3.

Montgomery shows that, while both markets lead to efficient license allocation, the market in pollution-licenses is more widely applicable than the market in emission-licenses.[28]

### International emissions trading[edit | edit source]

Part of a series on

World trade

File:Storck Harbour scene.jpg

Policy

* Import
* Export
* Balance of trade
* Trade law
* Trade pact
* Trade bloc
* Trade creation
* Trade diversion
* Export orientation
* Import substitution
* Trade finance
* Trade facilitation
* Trade route
* Domestic trade
* Tax

Restrictions

* Trade barriers
* Tariffs
* Non-tariff barriers
* Import quotas
* Tariff-rate quotas
* Import licenses
* Customs duties
* Export subsidies
* Technical barriers
* Bribery
* Exchange rate controls
* Embargo
* Safeguards
* Countervailing duties
* Anti-dumping duties
* Voluntary export restraints

History

* Mercantilism
* Protectionism
* Laissez-faire
* Free trade
* Economic nationalism
* Economic integration

Organizations

* International Monetary Fund
* International Trade Centre
* World Trade Organization
* World Customs Organization
* International Chamber of Commerce

Economic integration

* Preferential trading area
* Free-trade area
* Currency union
* Customs union
* Single market
* Economic union
* Fiscal union
* Customs and monetary union
* Economic and monetary union

Issues

* Intellectual property rights
* Smuggling
* Competition policy
* Government procurement
* Outsourcing
* Globalization
* Fair trade
* Trade justice
* Emissions trading
* Trade sanctions
* War
* Currency war
* Trade costs
* Trade war
* Trade and development

Lists

* Imports
* Exports
* Tariffs
* Largest consumer markets
* Leading trade partners

By country

* Trade mission
* Trading nation
* United States
* Argentina
* Pakistan
* Romania
* Vietnam
* India

Theory

* Comparative advantage
* Competitive advantage
* Heckscher–Ohlin model
* New trade theory
* Economic geography
* Intra-industry trade
* Gravity model of trade
* Ricardian trade theories
* Balassa–Samuelson effect
* Linder hypothesis
* Leontief paradox
* Lerner symmetry theorem
* Terms of trade

* v
* t
* e

#### Example[edit | edit source]

Emissions trading through Gains from Trade can be more beneficial for both the buyer and the seller than a simple emissions capping scheme.

Consider two European countries, such as Germany and Sweden. Each can either reduce all the required amount of emissions by itself or it can choose to buy or sell in the market.

File:Emissions.Trading.jpeg

Example MACs for two different countries

Suppose Germany can abate its CO2 at a much cheaper cost than Sweden, i.e. MACS > MACG where the MAC curve of Sweden is steeper (higher slope) than that of Germany, and RReq is the total amount of emissions that need to be reduced by a country.

On the left side of the graph is the MAC curve for Germany. RReq is the amount of required reductions for Germany, but at RReq the MACG curve has not intersected the market emissions permit price of CO2 (market permit price = P = λ). Thus, given the market price of CO2 allowances, Germany has potential to profit if it abates more emissions than required.

On the right side is the MAC curve for Sweden. RReq is the amount of required reductions for Sweden, but the MACS curve already intersects the market price of CO2 permits before RReq has been reached. Thus, given the market price of CO2 permits, Sweden has potential to make a cost saving if it abates fewer emissions than required internally, and instead abates them elsewhere.

In this example, Sweden would abate emissions until its MACS intersects with P (at R*), but this would only reduce a fraction of Sweden's total required abatement.

After that it could buy emissions credits from Germany for the price P (per unit). The internal cost of Sweden's own abatement, combined with the permits it buys in the market from Germany, adds up to the total required reductions (RReq) for Sweden. Thus Sweden can make a saving from buying permits in the market (Δ d-e-f). This represents the "Gains from Trade", the amount of additional expense that Sweden would otherwise have to spend if it abated all of its required emissions by itself without trading.

Germany made a profit on its additional emissions abatement, above what was required: it met the regulations by abating all of the emissions that was required of it (RReq). Additionally, Germany sold its surplus permits to Sweden, and was paid P for every unit it abated, while spending less than P. Its total revenue is the area of the graph (RReq 1 2 R*), its total abatement cost is area (RReq 3 2 R*), and so its net benefit from selling emission permits is the area (Δ 1-2-3) i.e. Gains from Trade

The two R* (on both graphs) represent the efficient allocations that arise from trading.

* Germany: sold (R* - RReq) emission permits to Sweden at a unit price P.
* Sweden bought emission permits from Germany at a unit price P.

If the total cost for reducing a particular amount of emissions in the Command Control scenario is called X, then to reduce the same amount of combined pollution in Sweden and Germany, the total abatement cost would be less in the Emissions Trading scenario i.e. (X — Δ 123 - Δ def).

The example above applies not just at the national level, but also between two companies in different countries, or between two subsidiaries within the same company.

#### Applying the economic theory[edit | edit source]

The nature of the pollutant plays a very important role when policy-makers decide which framework should be used to control pollution. CO2 acts globally, thus its impact on the environment is generally similar wherever in the globe it is released. So the location of the originator of the emissions does not matter from an environmental standpoint.[51]

The policy framework should be different for regional pollutants[52] (e.g. SO2 and NOx, and also mercury) because the impact of these pollutants may differ by location. The same amount of a regional pollutant can exert a very high impact in some locations and a low impact in other locations, so it matters where the pollutant is released. This is known as the Hot Spot problem.

A Lagrange framework is commonly used to determine the least cost of achieving an objective, in this case the total reduction in emissions required in a year. In some cases, it is possible to use the Lagrange optimization framework to determine the required reductions for each country (based on their MAC) so that the total cost of reduction is minimized. In such a scenario, the Lagrange multiplier represents the market allowance price (P) of a pollutant, such as the current market price of emission permits in Europe and the USA.[53]

Countries face the permit market price that exists in the market that day, so they are able to make individual decisions that would minimize their costs while at the same time achieving regulatory compliance. This is also another version of the Equi-Marginal Principle, commonly used in economics to choose the most economically efficient decision.

### Prices versus quantities, and the safety valve[edit | edit source]

File:Regional Greenhouse Gase Initiative (REGI) allowance clearing price in September 2008 through December 2021 (51840469964).png

Quarterly clearing price of an allowance to emit a ton of carbon dioxide in the US Regional Greenhouse Gas Initiative, 2008–2021. The price of carbon emission has increased as the number of allowances issued has decreased.

There has been longstanding debate on the relative merits of price versus quantity instruments to achieve emission reductions.[54]

An emission cap and permit trading system is a quantity instrument because it fixes the overall emission level (quantity) and allows the price to vary. Uncertainty in future supply and demand conditions (market volatility) coupled with a fixed number of pollution permits creates an uncertainty in the future price of pollution permits, and the industry must accordingly bear the cost of adapting to these volatile market conditions. The burden of a volatile market thus lies with the industry rather than the controlling agency, which is generally more efficient. However, under volatile market conditions, the ability of the controlling agency to alter the caps will translate into an ability to pick "winners and losers" and thus presents an opportunity for corruption.

In contrast, an emission tax is a price instrument because it fixes the price while the emission level is allowed to vary according to economic activity. A major drawback of an emission tax is that the environmental outcome (e.g. a limit on the amount of emissions) is not guaranteed. On one hand, a tax will remove capital from the industry, suppressing possibly useful economic activity, but conversely, the polluter will not need to hedge as much against future uncertainty since the amount of tax will track with profits. The burden of a volatile market will be borne by the controlling (taxing) agency rather than the industry itself, which is generally less efficient. An advantage is that, given a uniform tax rate and a volatile market, the taxing entity will not be in a position to pick "winners and losers" and the opportunity for corruption will be less.

Assuming no corruption and assuming that the controlling agency and the industry are equally efficient at adapting to volatile market conditions, the best choice depends on the sensitivity of the costs of emission reduction, compared to the sensitivity of the benefits (i.e., climate damage avoided by a reduction) when the level of emission control is varied.

Because there is high uncertainty in the compliance costs of firms, some argue that the optimum choice is the price mechanism. However, the burden of uncertainty cannot be eliminated, and in this case it is shifted to the taxing agency itself.

The overwhelming majority of climate scientists have repeatedly warned of a threshold in atmospheric concentrations of carbon dioxide beyond which a run-away warming effect could take place, with a large possibility of causing irreversible damage. With such a risk, a quantity instrument may be a better choice because the quantity of emissions may be capped with more certainty. However, this may not be true if this risk exists but cannot be attached to a known level of greenhouse gas (GHG) concentration or a known emission pathway.[55]

A third option, known as a safety valve, is a hybrid of the price and quantity instruments. The system is essentially an emission cap and permit trading system but the maximum (or minimum) permit price is capped. Emitters have the choice of either obtaining permits in the marketplace or buying them from the government at a specified trigger price (which could be adjusted over time). The system is sometimes recommended as a way of overcoming the fundamental disadvantages of both systems by giving governments the flexibility to adjust the system as new information comes to light. It can be shown that by setting the trigger price high enough, or the number of permits low enough, the safety valve can be used to mimic either a pure quantity or pure price mechanism.[56]

All three methods are being used as policy instruments to control greenhouse gas emissions: the EU-ETS is a quantity system using the cap and trading system to meet targets set by National Allocation Plans; Denmark has a price system using a carbon tax (World Bank, 2010, p. 218),[57] while China uses the CO2 market price for funding of its Clean Development Mechanism projects, but imposes a safety valve of a minimum price per tonne of CO2.

## Comparison with other methods of emission reduction[edit | edit source]

Cap and trade is the textbook example of an emissions trading program. Other market-based approaches include baseline-and-credit, and pollution tax. They all put a price on pollution (for example, see carbon price), and so provide an economic incentive to reduce pollution beginning with the lowest-cost opportunities. By contrast, in a command-and-control approach, a central authority designates pollution levels each facility is allowed to emit. Cap and trade essentially functions as a tax where the tax rate is variable based on the relative cost of abatement per unit, and the tax base is variable based on the amount of abatement needed.[citation needed]

### Baseline and credit[edit | edit source]

In a baseline and credit program, polluters can create permits, called credits or offsets, by reducing their emissions below a baseline level, which is often the historical emissions level from a designated past year.[2] Such credits can be bought by polluters that have a regulatory limit.[58]

### Pollution tax[edit | edit source]

Main article: Ecotax

Emissions fees or environmental tax is a surcharge on the pollution created while producing goods and services.[59] For example, a carbon tax is a tax on the carbon content of fossil fuels that aims to discourage their use and thereby reduce carbon dioxide emissions.[2] The two approaches are overlapping sets of policy designs. Both can have a range of scopes, points of regulation, and price schedules. They can be fair or unfair, depending on how the revenue is used. Both have the effect of increasing the price of goods (such as fossil fuels) to consumers.[60] A comprehensive, upstream, auctioned cap-and-trade system is very similar to a comprehensive, upstream carbon tax. Yet, many commentators sharply contrast the two approaches.

The main difference is what is defined and what derived. A tax is a price control, while a cap-and-trade system is a quantity control instrument.[60] That is, a tax is a unit price for pollution that is set by authorities, and the market determines the quantity emitted; in cap and trade, authorities determine the amount of pollution, and the market determines the price.[61] This difference affects a number of criteria.[59]

Responsiveness to inflation: Cap-and-trade has the advantage that it adjusts to inflation (changes to overall prices) automatically, while emissions fees must be changed by regulators.

Responsiveness to cost changes: It is not clear which approach is better. It is possible to combine the two into a safety valve price: a price set by regulators, at which polluters can buy additional permits beyond the cap.

Responsiveness to recessions: This point is closely related to responsiveness to cost changes, because recessions cause a drop in demand. Under cap and trade, the emissions cost automatically decreases, so a cap-and-trade scheme adds another automatic stabilizer to the economy—in effect, an automatic fiscal stimulus. However, a lower pollution price also results in reduced efforts to reduce pollution. If the government is able to stimulate the economy regardless of the cap-and-trade scheme, an excessively low price causes a missed opportunity to cut emissions faster than planned. Instead, it might be better to have a price floor (a tax). This is especially true when cutting pollution is urgent, as with greenhouse gas emissions. A price floor also provides certainty and stability for investment in emissions reductions: recent experience from the UK shows that nuclear power operators are reluctant to invest on "un-subsidised" terms unless there is a guaranteed price floor for carbon (which the EU emissions trading scheme does not presently provide).

Responsiveness to uncertainty: As with cost changes, in a world of uncertainty, it is not clear whether emissions fees or cap-and-trade systems are more efficient—it depends on how fast the marginal social benefits of reducing pollution fall with the amount of cleanup (e.g., whether inelastic or elastic marginal social benefit schedule).

Other: The magnitude of the tax will depend on how sensitive the supply of emissions is to the price. The permit price of cap-and-trade will depend on the pollutant market. A tax generates government revenue, but full-auctioned emissions permits can do the same. A similar upstream cap-and-trade system could be implemented. An upstream carbon tax might be the simplest to administer. Setting up a complex cap-and-trade arrangement that is comprehensive has high institutional needs.[62]

### Command-and-control regulation[edit | edit source]

Command and control is a system of regulation that prescribes emission limits and compliance methods for each facility or source. It is the traditional approach to reducing air pollution.[2]

Command-and-control regulations are more rigid than incentive-based approaches such as pollution fees and cap and trade. An example of this is a performance standard which sets an emissions goal for each polluter that is fixed and, therefore, the burden of reducing pollution cannot be shifted to the firms that can achieve it more cheaply. As a result, performance standards are likely to be more costly overall.[59] The additional costs would be passed to end consumers.[63]

## Trading systems[edit | edit source]

Apart from the dynamic development in carbon emission trading, other pollutants have also been targeted.

### United States[edit | edit source]

#### Sulfur dioxide[edit | edit source]

Main article: Acid Rain Program

An early example of an emission trading system has been the sulfur dioxide (SO2) trading system under the framework of the Acid Rain Program of the 1990 Clean Air Act in the U.S. Under the program, which is essentially a cap-and-trade emissions trading system, SO2 emissions were reduced by 50% from 1980 levels by 2007.[64] Some experts argue that the cap-and-trade system of SO2 emissions reduction has reduced the cost of controlling acid rain by as much as 80% versus source-by-source reduction.[45][65] The SO2 program was challenged in 2004, which set in motion a series of events that led to the 2011 Cross-State Air Pollution Rule (CSAPR). Under the CSAPR, the national SO2 trading program was replaced by four separate trading groups for SO2 and NOx.[66] SO2 emissions from Acid Rain Program sources have fallen from 17.3 million tons in 1980 to about 7.6 million tons in 2008, a decrease in emissions of 56 percent. A 2014 EPA analysis estimated that implementation of the Acid Rain Program avoided between 20,000 and 50,000 incidences of premature mortality annually due to reductions of ambient PM2.5 concentrations, and between 430 and 2,000 incidences annually due to reductions of ground-level ozone.[67][failed verification]

#### Nitrogen oxides[edit | edit source]

In 2003, the Environmental Protection Agency (EPA) began to administer the NOx Budget Trading Program (NBP) under the NOx State Implementation Plan (also known as the "NOx SIP Call"). The NOx Budget Trading Program was a market-based cap and trade program created to reduce emissions of nitrogen oxides (NOx) from power plants and other large combustion sources in the eastern United States. NOx is a prime ingredient in the formation of ground-level ozone (smog), a pervasive air pollution problem in many areas of the eastern United States. The NBP was designed to reduce NOx emissions during the warm summer months, referred to as the ozone season, when ground-level ozone concentrations are highest.[68] In March 2008, EPA again strengthened the 8-hour ozone standard to 0.075 parts per million (ppm) from its previous 0.08 ppm.[69]

Ozone season NOx emissions decreased by 43 percent between 2003 and 2008, even while energy demand remained essentially flat during the same period. CAIR will result in $85 billion to $100 billion in health benefits and nearly $2 billion in visibility benefits per year by 2015 and will substantially reduce premature mortality in the eastern United States.[citation needed] NOx reductions due to the NOx Budget Trading Program have led to improvements in ozone and PM2.5, saving an estimated 580 to 1,800 lives in 2008.[67][failed verification]

A 2017 study in the American Economic Review found that the NOx Budget Trading Program decreased NOx emissions and ambient ozone concentrations.[70] The program reduced expenditures on medicine by about 1.5% ($800 million annually) and reduced the mortality rate by up to 0.5% (2,200 fewer premature deaths, mainly among individuals 75 and older).[70]

#### Volatile organic compounds[edit | edit source]

File:Classification List of Organic Pollutants.png

Classification of Organic Pollutants

In the United States the Environmental Protection Agency (EPA) classifies Volatile Organic Compounds (VOCs) as gases emitted from certain solids and liquids that may have adverse health effects.[71] These VOCs include a variety of chemicals that are emitted from a variety of different products.[71] These include products such as gasoline, perfumes, hair spray, fabric cleaners, PVC, and refrigerants; all of which can contain chemicals such as benzene, acetone, methylene chloride, freons, formaldehyde.[72]

VOCs are also monitored by the United States Geological Survey for its presence in groundwater supply.[73] The USGS concluded that many of the nations aquifers are at risk to low-level VOC contamination.[73] The common symptoms of short levels of exposure to VOCs include headaches, nausea, and eye irritation.[74] If exposed for an extended period of time the symptoms include cancer and damage to the central nervous system.[74]

### China[edit | edit source]

In an effort to reverse the adverse consequences of air pollution, in 2006, China started to consider a national pollution permit trading system in order to use market-based mechanisms to incentivize companies to cut pollution.[75] This has been based on a previous pilot project called the Industrial SO2 emission trading pilot scheme, which was launched in 2002. Four provinces, three municipalities and one business entity was involved in this pilot project (also known as the 4+3+1 project). They are Shandong, Shanxi, Jiangsu, Henan, Shanghai, Tianjin, Liuzhou and China Huaneng Group, a state-owned company in the power industry.[76] This pilot project did not turn into a bigger scale inter-provincial trading system, but it stimulated numerous local trading platforms.[76]

In 2014, when the Chinese government started considering a national level pollution permit trading system again, there were more than 20 local pollution permit trading platforms. The Yangtze River Delta region as a whole has also run test trading, but the scale was limited.[77] In the same year, the Chinese government proposed establishing a carbon market, focused on CO2 reduction later in the decade, and it is a separate system from the pollution permit trading.[77]

A 2021 study in PNAS found that China's emissions trading system effectively reduced firm emissions despite low carbon prices and infrequent trading. The system reduced total emissions by 16.7% and emission intensity by 9.7%.[78]

### Europe[edit | edit source]

Main article: European Union Emissions Trading System

The EU Emission Trading System was established in the year 2005 - in line with the commitment period of the Kyoto protocol. It follows the cap and trade model where one allowance permits the holder to emit 1 ton of CO2 (tCO2). The scheme was said to cover energy and heat generation industries and around 11,186 plants participated in the first stage. These plants only accounted for 45% of all European emissions at the time. More than 90% of all these allowances were free of cost in both periods to build a strong base of abatements for the future phases.[79] This free allocation resulted in the volume and value of allowances growing three-fold over 2006 with the price moving from €19/tCO₂ in 2005 to its peak of €30/tCO₂[80] which revealed a new problem. The overallocation of allowances caused the price to drop to €1/tCO₂ in the first few months of 2007 which created market price instabilities for businesses to reinvest in low carbon technologies.

### Renewable energy certificates[edit | edit source]

Main article: Renewable Energy Certificates

Renewable Energy Certificates (occasionally referred to as or "green tags"[citation needed]), are a largely unrelated form of market-based instruments that are used to achieve renewable energy targets, which may be environmentally motivated (like emissions reduction targets), but may also be motivated by other aims, such as energy security or industrial policy.

## Criticism[edit | edit source]

File:Ambox current red Americas.svg

This article needs to be updated. Please help update this article to reflect recent events or newly available information. (March 2023)

|

File:2009-11-30 - Chicago Climate Justice activists in Chicago - Cap'n'Trade protest 011.jpg

Chicago Climate Justice activists protesting cap and trade legislation in front of Chicago Climate Exchange building in Chicago Loop

Emissions trading has been criticised for a variety of reasons.

For example, in the popular science magazine New Scientist, Lohmann (2006) argued that trading pollution allowances should be avoided as a climate stabilization policy for several reasons. First, climate change requires more radical changes than previous pollution trading schemes such as the US SO2 market. It requires reorganizing society and technology to "leave most remaining fossil fuels safely underground". Carbon trading schemes have tended to reward the heaviest polluters with 'windfall profits' when they are granted enough carbon credits to match historic production. Expensive long-term structural changes will not be made if there are cheaper sources of carbon credits which are often available from less developed countries, where they may be generated by local polluters at the expense of local communities.[81]

### Distributional effects[edit | edit source]

The US Congressional Budget Office (CBO, 2009) examined the potential effects of the American Clean Energy and Security Act on US households.[82] This act relies heavily on the free allocation of permits. The Bill was found to protect low-income consumers, but it was recommended that the Bill be made more efficient by reducing welfare provisions for corporations, and more resources be made available for consumer relief. A cap-and-trade initiative in the U.S. Northeast caused concerns it would be regressive and poorer households would absorb most of the new tax.[83]

### Carbon Leakage[edit | edit source]

The current state of ETS shows that roughly 22% of global greenhouse emissions are covered by 64 carbon taxes and emission trading systems as of 2021.[84] This means that there are still several member states that have not ratified the Kyoto Protocol. This is a cause of concern for energy intensive industries that are covered by such instruments that claim that there is a loss of competitiveness. Such corporations are thereby forced to take strategic production decisions that contribute to the issue of carbon leakage.

## Linking[edit | edit source]

Distinct cap-and-trade systems can be linked together through the mutual or unilateral recognition of emissions allowances for compliance. Linking systems creates a larger carbon market, which can reduce overall compliance costs, increase market liquidity and generate a more stable carbon market.[85][86] Linking systems can also be politically symbolic as it shows willingness to undertake a common effort to reduce GHG emissions.[87] Some scholars have argued that linking may provide a starting point for developing a new, bottom-up international climate policy architecture, whereby multiple unique systems successively link their various systems.[88][89]

In 2014, the U.S. state of California and the Canadian province of Québec successfully linked their systems. In 2015, the provinces of Ontario and Manitoba agreed to join the linked system between Quebec and California.[90] On 22 September 2017, the premiers of Quebec and Ontario, and the Governor of California, signed the formal agreement establishing the linkage.[91]

## See also[edit | edit source]

* Acid Rain Retirement Fund
* AP 42 Compilation of Air Pollutant Emission Factors
* Asia-Pacific Emissions Trading Forum
* Cap and Dividend
* Cap and Share
* Carbon credit
* Carbon emissions reporting
* Carbon finance
* Carbon offset
* Carbon tax
* Emission standard
* Energy law
* Flexible Mechanisms
* Green certificate
* Green investment scheme
* Individual and political action on climate change
* Low-carbon economy
* Low carbon power generation / Renewable energy
* Mitigation of global warming
* Mobile emission reduction credit (MERC)
* Personal carbon trading
* Pigovian tax
* Public Smog
* Reducing emissions from deforestation and forest degradation
* Verified Carbon Standard

## References[edit | edit source]

1. ^ a b Stavins, Robert N. (November 2001). "Experience with Market-Based Environmental Policy Instruments" (PDF). Discussion Paper 01-58. Washington, D.C.: Resources for the Future. Archived from the original (PDF) on 2011-05-01. Retrieved 2010-05-20. "Market-based instruments are regulations that encourage behavior through market signals rather than through explicit directives regarding pollution control levels or methods"
2. ^ a b c d "Cap and Trade: Key Terms Glossary" (PDF). Climate Change 101. Center for Climate and Energy Solutions. January 2011. Archived from the original (PDF) on 2017-10-05. Retrieved 27 October 2014.
3. ^ "Allowance Trading". U.S. Environment Protection Agency. Archived from the original on November 9, 2014. Retrieved Oct 21, 2014.
4. ^ Judson Jaffe; Matthew Ranson; Robert N. Stavins (2009). "Linking Tradable Permit Systems: A Key Element of Emerging International Climate Policy Architecture" (PDF). Ecology Law Quarterly. 36 (789). Archived from the original (PDF) on 2010-02-02. Retrieved 2010-08-25.
5. ^ Tietenberg, Tom (2003). "The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change". Oxford Review of Economic Policy. 19 (3): 400–419. doi:10.1093/oxrep/19.3.400.
6. ^ Stavins, Robert N. (November 2001). "Experience with Market-Based Environmental Policy Instruments" (PDF). Discussion Paper 01-58. Washington, D.C.: Resources for the Future. Archived from the original (PDF) on 2011-05-01. Retrieved 2010-08-25. `{{cite journal}}`: Cite journal requires `|journal=` (help)
7. ^ Teeter, Preston; Sandberg, Jorgen (2016). "Constraining or Enabling Green Capability Development? How Policy Uncertainty Affects Organizational Responses to Flexible Environmental Regulations" (PDF). British Journal of Management. 28 (4): 649–665. doi:10.1111/1467-8551.12188. S2CID 157986703. Archived (PDF) from the original on 2020-05-06. Retrieved 2020-06-06.
8. ^ a b Cap and Trade 101 Archived 2012-04-24 at the Wayback Machine, Center for American Progress, January 16, 2008.
9. ^ a b Boswall, J. and Lee, R. (2002). Economics, ethics and the environment. London: Cavendish. pp.62–66.
10. ^ "Emissions trading schemes around the world" Archived 2020-01-10 at the Wayback Machine, Parliament of Australia, 2013.
11. ^ "Cap and Trade 101". United States Environmental Protection Agency. Archived from the original on 5 August 2015. Retrieved 27 October 2014.
12. ^ O'Sullivan, Arthur, and Steven M. Sheffrin. Economics: Principles in Action. Upper Saddle River, New Jersey, 2003. ISBN 0-13-063085-3
13. ^ "How cap and trade works". Environmental Defense Fund. Archived from the original on 26 November 2019. Retrieved 27 October 2014.
14. ^ "USEPA's Clean Air Markets web site". US EPA. Archived from the original on 2010-07-24. Retrieved 2009-11-03.
15. ^ Burton, Ellison, and William Sanjour (1967) An Economic Analysis of the Control of Sulphur Oxides Air Pollution DHEW Program Analysis Report No. 1967-69 Washington, D.C.: Ernst and Ernst.
16. ^ Burton, Ellison, and William Sanjour. (1968). A Cost-Effectiveness Study of Particulate and SOx Emission Control in the New York Metropolitan Area. NTIS: PB-227 121/1. Contract Number: PH-86-68-37. Washington, D.C.: Ernst and Ernst.
17. ^ Burton, Ellison, and William Sanjour. (1969). A Cost-Effectiveness Study of Air Pollution Abatement in the Greater Kansas City Area. NTIS: PB-227 116/1. Washington, D.C.: Ernst and Ernst.
18. ^ Burton, Ellison, and William Sanjour. (1969). A Cost-effectiveness Study of Air Pollution Abatement in the National Capital Area. NAPCA Contract No. PH 86-68-37, NTIS: PB227110. Washington, D.C.: Ernst and Ernst.
19. ^ Burton, Ellison, and William Sanjour. (1970). Applications of Cost-Effectiveness Analysis to Air Pollution Control. DHEW Contract No. CPA 22-69-17. Washington, D.C.: Ernst and Ernst.
20. ^ Burton, E. S.; Sanjour, William (1970). "A Simulation Approach to Air Pollution Abatement Program Planning". Socio-Economic Planning Sciences. 4: 147–150. doi:10.1016/0038-0121(70)90036-4.
21. ^ Burton, Ellison S., Edward H. Pechan III, and William Sanjour. (1973). A Survey of Air Pollution Control Models. Rolf A. Deininger, ed. Ann Arbor: Ann Arbor Science Publishers.
22. ^ Burton, Ellison S.; Edward, H. Pechan III; Sanjour, William (1973). "Solving the Air Pollution Control Puzzle". Environmental Science and Technology. 7 (5): 412–5. Bibcode:1973EnST....7..412B. doi:10.1021/es60077a011. PMID 22283532.
23. ^ U.S. Environmental Protection Agency. (1972). The Economics of Clean Air, Annual Report of the Environmental Protection Agency to the Congress of the United States. Washington, D.C.: U.S. Government Printing Office.
24. ^ Voss, Jan-Peter (2007). "Innovation processes in governance: the development of emissions trading as a new policy instrument". Science and Public Policy. 34 (5): 329–343. doi:10.3152/030234207x228584.
25. ^ Coase, Ronald H. (1960). "The Problem of Social Cost". Journal of Law and Economics. 3 (1): 1–44. doi:10.1086/466560. S2CID 222331226.
26. ^ Crocker, T. D. (1966). The Structuring of Atmospheric Pollution Control Systems. The Economics of Air Pollution. H. Wolozin. New York, W. W. Norton & Co.: 61–86.
27. ^ Dales, John H (1968). "Land, Water, and Ownership". The Canadian Journal of Economics. 1 (4): 791–804. doi:10.2307/133706. JSTOR 133706.
28. ^ a b c Montgomery, W.D (December 1972). "Markets in Licenses and Efficient Pollution Control Programs". Journal of Economic Theory. 5 (3): 395–418. doi:10.1016/0022-0531(72)90049-X.
29. ^ Gillenwater, Michael; Seres, Stephen (March 2011). "The Clean Development Mechanism: A Review of the First International Offset Program" (PDF). Pew Center on Global Climate Change. p. 6\. Archived from the original (PDF) on 31 August 2016. Retrieved 26 November 2016.
30. ^ Coniff, Richard (Aug. 2009). "The Political History of Cap and Trade" Archived 2010-11-13 at the Wayback Machine. Smithsonian Magazine. Retrieved 1-13-2011
31. ^ Grimeaud, D, 'An overview of the policy and legal aspects of the international climate change regime' (2001) 9(2) Environmental Liability 39.
32. ^ Toth, F.L.; et al. (2001). "10.4.5 Who Should Pay for the Response? Mitigation by Countries and Sectors: Equity and Cost-effectiveness Considerations. In (book chapter): Decision-making Frameworks. In: Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (B. Metz et al. Eds.)". Print version: Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. This version: GRID-Arendal website. Archived from the original on 2009-08-05. Retrieved 2010-01-10.
33. ^ Helm, D. (2005). "Economic Instruments and Environmental Policy". The Economic and Social Review. 36 (3): 4. Archived from the original on 2011-05-01. Retrieved 2010-04-26.
34. ^ Bashmakov, I.; et al. (2001). "6.3.1 International Emissions Trading. In (book chapter): 6. Policies, Measures, and Instruments. In: Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (B. Metz et al. Eds.)". Print version: Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. This version: GRID-Arendal website. Archived from the original on 2009-08-05. Retrieved 2010-04-26.
35. ^ a b Goldemberg, J.; et al. (1996). "Introduction: scope of the assessment.". In J.P. Bruce; et al. (eds.). In: Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change. This version: Printed by Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. PDF version: IPCC website. p. 29\. ISBN 978-0-521-56854-8.
36. ^ Halsnæs, K.; et al. (2007). "2.6.5 Economic efficiency and eventual trade-offs with equity. In (book chapter): Framing issues. In: Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (B. Metz et al. Eds.)". Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A. Archived from the original on May 2, 2010. Retrieved 2010-04-26.
37. ^ Bashmakov, I.; et al. (2001). "6.2.2.3 Tradable Permits. In (book chapter): 6. Policies, Measures, and Instruments.". In B. Metz; et al. (eds.). Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Print version: Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. This version: GRID-Arendal website. Archived from the original on 2009-08-05. Retrieved 2010-04-26.
38. ^ IMF (March 2008). "Fiscal Implications of Climate Change" (PDF). International Monetary Fund, Fiscal Affairs Department. Archived (PDF) from the original on 2010-08-06. Retrieved 2010-04-26.
39. ^ Halsnæs, K.; et al. (2007). "2.4 Cost and benefit concepts, including private and social cost perspectives and relationships to other decision-making frameworks". In B. Metz; et al. (eds.). Framing issues. Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A. p. 6\. Archived from the original on May 2, 2010. Retrieved 2010-04-26.
40. ^ eschwass (2019-01-02). "State and Provincial Efforts to Put a Price on Greenhouse Gas Emissions, with Implications for Energy Efficiency". ACEEE. Archived from the original on 2019-01-09. Retrieved 2019-01-08.
41. ^ Fisher, B.S.; et al. (1996). "An Economic Assessment of Policy Instruments for Combating Climate Change". In J.P. Bruce; et al. (eds.). Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change. This version: Printed by Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. PDF version: IPCC website. ISBN 978-0-521-56854-8.
42. ^ a b Nordhaus, William (2007). "To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming" (PDF). Oxford University Press. Archived from the original (PDF) on 2011-07-25. Retrieved 2010-04-28.
43. ^ Garnaut, Ross (2008). "Releasing permits into the market". The Garnaut Climate Change Review. Cambridge University Press. ISBN 978-0-521-74444-7. Archived from the original on 2010-07-23. Retrieved 2010-04-28.
44. ^ "Key points: Update Paper 6: Carbon pricing and reducing Australia's emissions". Garnaut Climate Change Review. 17 March 2011. Archived from the original on 21 April 2013. Retrieved 16 July 2013.
45. ^ a b Stavins, Robert N (1998). "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading". The Journal of Economic Perspectives. 3. American Economic Association. 12 (3): 69–88. doi:10.1257/jep.12.3.69. JSTOR 2647033. Archived from the original on 2015-09-21. Retrieved 2021-11-20.
46. ^ Bryner, Gary C. Blue Skies, Green Politics: the Clean Air Act of 1990. Washington, D.C.:Congressional Quarterly Inc., 1951
47. ^ Cox, Stan (2013). "Any way you slice it: The past, present and future of rationing" Archived 2019-08-15 at the Wayback Machine. New Press Books.
48. ^ Hall, JV and Walton, AL, "A case study in pollution markets: dismal science US. Dismal reality" (1996) XIV Contemporary Economic Policy 67.
49. ^ "MRV&Enforcement". International Carbon Action Partnership (ICAP). Archived from the original on 27 October 2014. Retrieved 26 Oct 2014.
50. ^ Tiwari, Gopal Nath; Agrawal, Basant (2010). Building integrated photovoltaic thermal systems : for sustainable developments. Cambridge: Royal Society of Chemistry. ISBN 978-1-84973-090-7.
51. ^ Ramseur, Jonathan L. (April 16, 2010), "Estimating Offset Supply in a Cap-and-Trade Program" (PDF), Congressional Research Service: 1, archived from the original (PDF) on September 27, 2013, retrieved February 15, 2011 `{{cite journal}}`: Cite journal requires `|journal=` (help)
52. ^ Map: Pollution hotspots Archived 2010-11-16 at the Wayback Machine, BBC map of areas that suffer from intense local pollution, BBC News, 2004-12-13. Retrieved 2009-10-19.
53. ^ "Chicago Climate Exchange prices". Chicagoclimatex.com. 2009-08-04. Archived from the original on 2009-11-05. Retrieved 2009-11-03.
54. ^ Weitzman, M. L. (October 1974). "Prices vs. Quantities". Review of Economic Studies. 41 (4): 477–491. CiteSeerX 10.1.1.1031.4819. doi:10.2307/2296698. JSTOR 2296698.
55. ^ Philibert, Cédric (October 2006). "Certainty versus ambition economic efficiency in mitigating climate change" (PDF). International Energy Agency Working Paper Series. Paris: International Energy Agency/OECD. LTO/2006/03. Archived from the original (PDF) on 2009-03-25. Retrieved 2010-01-24.
56. ^ Jacoby, D.H.; Ellerman, A.D. (March 2004). "The safety valve and climate policy" (PDF). Energy Policy. 32 (4): 481–49. doi:10.1016/S0301-4215(03)00150-2. hdl:1721.1/3561. Archived (PDF) from the original on 2007-06-28. Retrieved 2019-09-23.
57. ^ "World Development Report 2010: Development and Climate Change" (PDF). World Bank. 2010. Archived (PDF) from the original on 2016-03-04. Retrieved 2010-04-06.
58. ^ Chomitz, Kenneth M. (1999). "Evaluating Carbon Offsets from Forestry and Energy Projects: How Do They Compare?". Policy Research Working Paper Series. 2357. World Bank. SSRN 630729. `{{cite journal}}`: Cite journal requires `|journal=` (help)
59. ^ a b c Rosen, Harvey S.; Gayer, Ted (2008). Public Finance. New York: McGraw-Hill Irwin. pp. 90–94. ISBN 978-0-07-351128-3.
60. ^ a b Burney, Nelson E. (2010). Carbon Tax and Cap-and-trade Tools : Market-based Approaches for Controlling Greenhouse Gases. New York: Nova Science Publishers, Inc. ISBN 9781608761371.
61. ^ Durning, Alan (July 2009). "carBon tax vS. cap and trade" (PDF). Cap and Trade 101 a Federal Climate Policy Primer: 28. Archived from the original (PDF) on 7 July 2014. Retrieved 27 October 2014.
62. ^ Calel, Raphael, "The Language of Climate Change Policy" Archived 2021-02-24 at the Wayback Machine, 2010.
63. ^ Yujie Lu; Xinyuan Zhu; Qingbin Cui (2012). "Effectiveness and equity implications of carbon policies in the United States construction industry". Building and Environment. Elsevier Ltd. 49: 259–269. doi:10.1016/j.buildenv.2011.10.002.
64. ^ "Acid Rain Program 2007 Progress Report". Clean Air Markets - Air & Radiation. US EPA. January 2009. Archived from the original on 2011-05-01. Retrieved 2011-07-25.
65. ^ Carlson, Curtis; Burtraw, Dallas; Cropper, Maureen; Palmer, Karen L. (2000). "Sulfur dioxide control by electric utilities: What are the gains from trade?" (PDF). Journal of Political Economy. 108 (6): 1292–1326. doi:10.1086/317681. S2CID 3037737.
66. ^ "Cross-State Air Pollution Rule (CSAPR)". United States Environment Protection Agency. 2011-07-09. Archived from the original on 2011-07-11. Retrieved 2011-07-10.
67. ^ a b "Cap and Trade". United States Environmental Protection Agency. Archived from the original on 8 November 2014. Retrieved 27 October 2014.
68. ^ "NOx Budget Trading Program" Archived 2017-04-26 at the Wayback Machine, Environmental Protection Agency. Retrieved 25 April 2017.]
69. ^ "Ozone Fact Sheet" Archived 2017-02-22 at the Wayback Machine, Environmental Protection Agency. Retrieved 25 April 2017.
70. ^ a b Deschênes, Olivier; Greenstone, Michael; Shapiro, Joseph (2017). "Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program". American Economic Review. 107 (10): 2958–2989. doi:10.1257/aer.20131002. ISSN 0002-8282.
71. ^ a b EPA,OAR,ORIA,IED, US (18 August 2014). "Volatile Organic Compounds' Impact on Indoor Air Quality | US EPA". US EPA. Archived from the original on 2017-11-22. Retrieved 2017-11-30.`{{cite web}}`: CS1 maint: multiple names: authors list (link)
72. ^ "Volatile Organic Compounds (VOCs) in Commonly Used Products". www.health.ny.gov. Archived from the original on 2018-01-11. Retrieved 2017-11-30.
73. ^ a b Synthesis, NAWQA VOC National. "Chapter 1 - Major Findings and Conclusions". water.usgs.gov. Archived from the original on 2017-05-18. Retrieved 2017-11-30.
74. ^ a b "Volatile Organic Compounds (VOCs) in Your Home - EH: Minnesota Department of Health". www.health.state.mn.us. Archived from the original on 2017-12-01. Retrieved 2017-11-30.
75. ^ Bartson, Andrew (March 29, 2006). "China Considers Tradable Pollution-Rights Permits". The Wall Street Journal. Archived from the original on December 14, 2017. Retrieved January 27, 2019.
76. ^ a b Tu, Zhengge; Shen, Renjun (2014). "Can China's Industrial SO2 Emissions Trading Pilot Scheme Reduce Pollution Abatement Costs?". Sustainability. 6 (11): 7621–7645. doi:10.3390/su6117621. S2CID 17764664.
77. ^ a b "China considers national pollution permit trading". Under2 Coalition. 2014-01-14. Archived from the original on 2018-09-08. Retrieved 2018-09-08.
78. ^ Cui, Jingbo; Wang, Chunhua; Zhang, Junjie; Zheng, Yang (2021-12-28). "The effectiveness of China's regional carbon market pilots in reducing firm emissions". Proceedings of the National Academy of Sciences. 118 (52). doi:10.1073/pnas.2109912118. ISSN 0027-8424. PMC 8719898. PMID 34930839.
79. ^ "Validate User". academic.oup.com. doi:10.1093/cje/bet028. Retrieved 2022-04-25.
80. ^ Capoor, Karan; Ambrosi (May 2008). "State and Trends of the Carbon Market 2008". World Bank Group.
81. ^ Lohmann, Larry (2006-12-05). "A licence to carry on polluting?". New Scientist. 2580. Archived from the original on 2009-01-30. Retrieved 2010-07-17. Alt URL Archived 2011-05-01 at the Wayback Machine
82. ^ Stone, Chad; Shaw, Hannah (2009-07-10). "Senate can strengthen climate legislation by reducing corporate welfare and boosting true consumer relief" (PDF). Centre for Budget and Policy Priorities. Archived (PDF) from the original on 2009-10-24. Retrieved 2010-01-27.
83. ^ "Rising gas prices are fueling opposition to Transportation Climate Initiative". 17 November 2021.
84. ^ World Bank. (2021, May 25). State and trends of carbon pricing 2021. https://openknowledge.worldbank.org/handle/10986/35620
85. ^ "Linking Emissions Trading Systems: A Summary of Current Research" Archived 2021-11-20 at the Wayback Machine, ICAP 2015.
86. ^ Burtraw, D., Palmer, K. L., Munnings, C., Weber, P., & Woerman, M., 2013: Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets. SSRN Electronic Journal. doi:10.2139/ssrn.2249955
87. ^ Flachsland, C., Marschinski, R., & Edenhofer, O., 2009: To link or not to link: benefits and disadvantages of linking cap-and-trade systems. Climate Policy, 9(4), 358–372. doi:10.3763/cpol.2009.0626
88. ^ Ranson, M., & Stavins, R., 2013: Linkage of Greenhouse Gas Emissions Trading Systems - Learning from Experience. Discussion Paper Resources For The Future, No. 42
89. ^ The House of Commons Energy and Climate Committee, 2015: Linking emissions trading systems. London.
90. ^ "Quebec, Ontario, Manitoba sign agreement to link cap-and-trade systems" Archived 2016-06-29 at the Wayback Machine, CBC News, 7 December 2015.
91. ^ "California-Ontario-Québec Agreement on the Harmonization and Integration of their Cap-and-Trade Programs" (PDF). California Air Resources Board. Government of California. Archived (PDF) from the original on 14 November 2017. Retrieved 14 November 2017.

## Further reading[edit | edit source]

* Lin Feng; Jason Buhi (2009). "Emissions Trading Across China: Incorporating Hong Kong and Macau into an Urgently Needed Air Pollution Control Regime Under 'One Country, Two Systems'". Florida State University Journal of Transnational Law & Policy, Vol. 19, 2009. SSRN 1441395. `{{cite journal}}`: Cite journal requires `|journal=` (help)
* Gilbertson, T.; O. Reyes (1 November 2009). "Carbon Trading: how it works and why it fails". Dag Hammarskjöld Foundation. Archived from the original on 25 August 2017. Retrieved 2010-05-14.
* Chichilnisky, C.; Heal, G., eds. (2000). "Environmental Markets: Equity and Efficiency". Columbia University Press. Archived from the original on 2010-04-17. Retrieved 2010-05-12.
* Norregaard, J.; V. Reppelin-Hill (1 January 2000). "Taxes and Tradable Permits as Instruments for Controlling Pollution: Theory and Practice. Working Paper No. 00/13". International Monetary Fund. Retrieved 2010-05-12.
* Susanne Schennach (2000). "The Economics of Pollution Permit Banking in the Context of Title IV of the 1990 Clean Air Act Amendments". Journal of Environmental Economics and Management. Elsevier. 40 (3): 189–210. doi:10.1006/jeem.1999.1122. hdl:1721.1/45081.

## External links[edit | edit source]

Information about
Emissions trading

* * *

* Resources in your library

* Dr. Daniel Fine of the New Mexico Center for Energy Policy on Cap and Trade
* Emissions Trading and CDM – International Energy Agency
* Greenhouse Gas Emissions Trading and Project-based Mechanisms – Organisation for Economic Co-operation and Development
* US EPA's Acid Rain Program
* Illinois Emissions Reduction Market System
* "The Making of a Market-Minded Environmentalist", article by Fred Krupp in Strategy+Business (registration required) that articulates some of the reasoning and history behind emissions trading in California
* International Emissions Trading Association

* v
* t
* e

Emissions trading schemes

Asia|

* Chinese national carbon trading scheme

Australasia|

* New Zealand Emissions Trading Scheme

Europe|

* European Union Emission Trading Scheme
* UK Emissions Trading Scheme

North America|

* Greenhouse Gas Pollution Pricing Act
* Western Climate Initiative
* Regional Greenhouse Gas Initiative

* v
* t
* e

Climate change

Overview

* Attribution of recent climate change
* Effects of climate change
* Climate change mitigation
* Climate change adaptation
* By country and region

Causes

| Overview

* Attribution of recent climate change
* Extreme event attribution
* Greenhouse effect
* Scientific consensus on climate change

|

Sources|

* Greenhouse gases
* Greenhouse gas emissions
* Greenhouse gas emissions from agriculture
* Fossil fuel
* Deforestation and climate change
* Land use, land-use change, and forestry

History

* History of climate change science
* History of climate change policy and politics
* Svante Arrhenius
* James Hansen
* Charles David Keeling
* Intergovernmental Panel on Climate Change (IPCC)
* United Nations conferences
* 2019
* 2020
* 2021
* 2022

Effects and issues

| Physical|

* Abrupt climate change
* Anoxic event
* Arctic methane emissions
* Drought
* Glacier retreat
* Oceans
* Ocean acidification
* Ocean heat content
* Ozone depletion
* Tipping points in the climate system
* Sea level rise
* Season creep
* Shutdown of thermohaline circulation
* Tropical cyclones
* Water cycle
* Wildfires

|

Flora and fauna|

* Ecosystems
* Mass mortality event
* Invasive species
* Plant biodiversity
* Marine life
* Terrestrial animals
* Birds
* Extinction risk from climate change
* Forest dieback

Social impacts|

* Agriculture
* Cities
* Children
* Disability
* Economic impacts
* Fisheries
* Gender
* Health
* Human rights
* Indigenous peoples
* Mental health
* Migration
* Poverty
* Risk assessments
* Security and conflict
* Climate vulnerability

By country & region|

* Africa
* Americas
* Antarctica
* Arctic
* Australia
* Caribbean
* Europe
* Middle East and North Africa
* Small island countries
* South Asia
* by individual country

Society and climate change

| Society|

* Business responses
* Climate action
* Climate grief
* Climate movement
* school strike
* Climate emergency declaration
* Denial
* Soft denial
* Tobacco industry playbook
* conspiracy theories
* Controversy
* Ethics
* Governance
* Litigation
* Climate justice
* Politics
* Public opinion
* Women

|

Communication|

* Education
* Climate spiral
* Popular culture depictions
* art
* climate fiction
* games
* Climate Change Performance Index
* Climate crisis (term)
* Media coverage
* Warming stripes

International agreements|

* Glasgow Climate Pact
* Kyoto Protocol
* Paris Agreement
* United Nations Framework Convention on Climate Change

Mitigation

| Economics and finance|

* Carbon credit
* Carbon offset
* Carbon tax
* Climate debt
* Climate risk
* Climate risk insurance
* Climate finance
* Fossil fuel divestment
* Economics of mitigation
* Emissions trading
* Low-carbon economy

|

Energy|

* Carbon capture and storage
* Energy transition
* Fossil fuel phase-out
* Low-carbon energy
* Nuclear power
* Renewable energy
* Sustainable energy

Personal|

* Carbon neutrality
* Individual action on climate change

Other|

* Blue carbon
* Carbon dioxide removal
* Carbon capture and storage
* Climate change mitigation scenarios
* Climate engineering
* Solar geoengineering
* Nature-based solutions
* Reducing emissions from deforestation and forest degradation
* Reforestation

Background and theory

| Measurements|

* Satellite measurements

|

Theory|

* Albedo
* Carbon sink
* Climate sensitivity
* Climate variability and change
* Cloud forcing
* Fixed anvil temperature hypothesis
* Iris hypothesis
* Feedbacks
* Earth's energy budget
* Effective temperature
* Global warming potential
* Illustrative model of greenhouse effect on climate change
* Orbital forcing
* Radiative forcing

Research|

* Climate model
* Paleoclimatology
* Paleotempestology

* '
* List-Class article Glossary
* List-Class article Index
* Category Category

* v
* t
* e

Sustainability

* Outline
* Index

Principles|

* Anthropocene
* Earth system governance
* Ecological modernization
* Environmental governance
* Environmentalism
* Global catastrophic risk
* Human impact on the environment
* Planetary boundaries
* Social sustainability
* Stewardship
* Sustainable development

Consumption|

* Anthropization
* Anti-consumerism
* Circular economy
* Earth Overshoot Day
* Ecological footprint
* Ethical
* Micro-sustainability
* Over-consumption
* Simple living
* Steady-state economy
* Sustainability advertising
* Sustainability brand
* Sustainability marketing myopia
* Sustainable
* Systemic change resistance
* Tragedy of the commons

World population|

* Birth control
* Demographic transition
* Family planning
* Control
* Sustainable population
* Women's education and empowerment

Technology|

* Appropriate
* Environmental
* Natural building

Biodiversity|

* Biosecurity
* Biosphere
* Conservation biology
* Endangered species
* Holocene extinction
* Invasive species

Energy|

* Carbon footprint
* Climate change mitigation
* Conservation
* Descent
* Efficiency
* Electrification
* Emissions trading
* Fossil-fuel phase-out
* Peak oil
* Poverty
* Rebound effect
* Renewable

Food|

* Civic agriculture
* Community-supported agriculture
* Forest gardening
* Foodscaping
* Local
* Permaculture
* Security
* Sustainable agriculture
* Sustainable fishery
* Urban horticulture
* Vegetable box scheme

Water|

* Conservation
* Crisis
* Efficiency
* Footprint
* Reclaimed
* Sanitation

Accountability|

* Sustainability accounting
* Sustainability measurement
* Sustainability metrics and indices
* Sustainability reporting
* Standards and certification
* Sustainable yield

Applications|

* Organic movement
* Advertising
* Architecture
* Art
* Business
* City
* College programs
* Community
* Design
* Ecovillage
* Education for Sustainable Development
* Fashion
* Gardening
* Geopark
* Green marketing
* Industries
* Landscape architecture
* Living
* Low-impact development
* Sustainable market
* Organizations
* Packaging
* Practices
* Procurement
* Space
* Tourism
* Transport
* Urban drainage systems
* Urban infrastructure
* Urbanism

Management|

* Environmental
* Fisheries
* Forest
* Landscape
* Materials
* Natural resource
* Planetary
* Waste

Agreements and
conferences|

* UN Conference on the Human Environment (Stockholm 1972)
* Brundtlandt Commission Report (1983)
* Our Common Future (1987)
* Earth Summit (1992)
* Rio Declaration on Environment and Development (1992)
* Agenda 21 (1992)
* Convention on Biological Diversity (1992)
* ICPD Programme of Action (1994)
* Lisbon Principles (1997)
* Kyoto Protocol (1997)
* Earth Charter (2000)
* UN Millennium Declaration (2000)
* Earth Summit 2002 (Rio+10, Johannesburg)
* UN Conference on Sustainable Development (Rio+20, 2012)
* Sustainable Development Goals (2015)
* Paris Agreement (2015)
* UN Ocean Conference (2017)

* Category Category
* List-Class article Lists
* Science
* Studies
* Degrees

* v
* t
* e

Natural resources

Air|

| Pollution / quality|

* Ambient standards (USA)
* Index
* Indoor
* developing nations
* Law
* Clean Air Act (USA)
* Ozone depletion

|

Emissions|

* Airshed
* Trading
* Deforestation (REDD)

Energy|

* Law
* Resources
* Fossil fuels (peak oil)
* Geothermal
* Hydro
* Nuclear
* Solar
* sunlight
* shade
* Wind

Land|

* Arable
* peak farmland
* Degradation
* Landscape
* cityscape
* seascape
* soundscape
* viewshed
* Law
* property
* Management
* habitat conservation
* Minerals
* Gemstone
* Industrial
* Ore
* Metal
* mining
* law
* sand
* peak
* rights
* Soil
* conservation
* fertility
* health
* resilience
* Use
* planning
* reserve

Life|

* Biodiversity
* Bioprospecting
* Biosphere
* Bushfood
* Bushmeat
* Fisheries
* climate change
* law
* management
* Forests
* genetic resources
* law
* management
* non-timber products
* Game
* law
* Marine conservation
* Meadow
* Plants
* FAO Plant Treaty
* food
* genetic resources
* gene banks
* herbal medicines
* UPOV Convention
* wood
* Rangeland
* Seed bank
* Wildlife
* conservation
* management

Water|

| Types / location|

* Aquifer
* storage and recovery
* Drinking
* Fresh
* Groundwater
* pollution
* recharge
* remediation
* Hydrosphere
* Ice
* bergs
* glacial
* polar
* Irrigation
* huerta
* Marine
* Rain
* harvesting
* Stormwater
* Surface water
* Sewage
* Reclaimed water
* Watershed

|

Aspects|

* Desalination
* Floods
* Law
* Leaching
* Sanitation
* Conflict
* Conservation
* Peak water
* Pollution
* Privatization
* Quality
* Right
* Resources
* management
* policy

Related|

* Commons
* enclosure
* global
* land
* tragedy of
* Economics
* ecological
* land
* Ecosystem services
* Exploitation
* overexploitation
* Earth Overshoot Day
* Management
* adaptive
* Natural capital
* accounting
* good
* Natural heritage
* Nature reserve
* Systems ecology
* Urban ecology
* Wilderness

Resource|

* Common-pool
* Conflict (perpetuation)
* Curse
* Depletion
* Extraction
* Nationalism
* Renewable / Non-renewable

* Category Category

*[v]: View this template
*[t]: Discuss this template
*[e]: Edit this template