What is cap and trade?


A cap puts a maximum tolerable level of pollution and makes companies that go beyond this limit to pay. My Star location Select Location. Companies that need additional credits can then purchase them from other companies that do not need their full emissions allowance. Trading in permits enables companies to buy and sell their allowances. Premier Kathleen Wynne has announced that she will sign a deal with Quebec to set up a cap-and-trade system to curb carbon emissions and fight climate change.


Quebec set up a cap-and-trade system in January , subjecting industries emitting at least 25, metric tonnes of CO2 annually to a set limit. California set up a cap-and-trade system in California and Quebec set up a joint system in — the largest in North America — which allowed companies in either jurisdiction to exchange carbon credits.

Once Ontario joins, companies in this province will be able to buy permits from, and sell to, companies in California and Quebec, and vice-versa. The EU predicts that emissions in the sectors covered by the system will drop by 21 per cent between and , and by 43 per cent by Governments have tended to over-allocate carbon allowances, he explained, in order to minimize the push-back from carbon-intensive industries. Policy makers have debated whether cap and trade is a better way to combat climate change than a carbon tax, a set fee imposed on every tonne of greenhouse gas emissions that industries release into the atmosphere.

The David Suzuki Foundation explains that the specifications of either system will determine which yields the best environmental protections. Copyright owned or licensed by Toronto Star Newspapers Limited.

To order copies of Toronto Star articles, please go to: What is cap and trade? How will it impact Ontario? Creates Revenue to Companies Companies can actually turn their pollution cuts into revenue. This will enhance public confidence in the integrity of the program. After the cap has been determined, allowances for portions of the total limit are allocated.

This leads to an overproduction of pollutants relative to the theoretical social optimal level. Shop What is a Cap-and-Trade System? By extension, it is relatively more expensive to produce those emissions compared to other production processes. Companies are taxed if they produce a higher level of total emissions than their permits allow, but they can also sell off any unused allowance to other producers.

Simplicity and Predictability The rules and policies should be easy to understand and easy to enforce. Cap-and-trade enables the government to authorize the exact amounts of reductions it desires to see. Transparency on the part of the companies is very important. A cap puts a maximum tolerable level of pollution and makes companies that go beyond this limit to pay. By trading allowances, these companies get an option to meet their annual targets. A compulsory cap on emissions is important in protecting public health as well as the environment.

The cap is usually measured in billions of tons of carbon dioxide per year. The cap puts a limit on gas emissions which from time to time is lowered to reduce and control the amount of toxins released by pollutants into the atmosphere. Cap-and-trade system is different from carbon tax. Guiding Principles for Cap and Trade Program The three features that are important to the design and implementation of environmentally sensitive and economically efficient cap and trading programs include: For instance, when companies continuously report to the government the amount of emissions they emit, the government can probably set the caps above limit and reductions may not be achieved.

It is therefore important for all world economies to embrace this system in order to make the environment cleaner and to reduce the effects of global warming.