What is Carbon Cap and Trade? In Europe? In the US? Part 1

Carbon Cap and Trade is essentially as it sounds: cap (limit) the number of tons of carbon emitted into the atmosphere. "Cap and trade" is like sharing a pizza, everyone gets a slice, the "cap" in "cap and trade" is limiting everyone to one finite pizza. The "trade" part of "cap and trade" refers to the interaction you'd share if say you wanted more pizza, but you would have to pay someone else for theirs. Some people need more slices of pizza than others; sometimes several people at once need more slices of pizza, but remember there is only one pizza pie! Hunger is a strong motivating force, and the person that is willing to sell their slice can make a profit.

Now replace the pizza with a carbon cap/limit and replace the pizza slice owners with actual companies. Cap and trade is designed to limit the amount of carbon released into the atmosphere by reducing each company to a certain slice of the carbon cap. Some energy/carbon intensive industries would either have to pollute less, offset by investing into energy efficiency or renewable energy (producing their required energy with less carbon emissions), or buy the right to pollute more by paying another company for their emissions credits (also known as an emissions permits). Who thought of this idea anyway!?

When people think of carbon cap and trade, they usually are referring to Europe's carbon cap and trade system called the Emissions Trading Scheme (ETS). It was set up in 2003 as an answer to the Kyoto Protocol's emission reductions targets. Surprisingly, the ETS was designed after a very successful cap and trade system in the United States about 10 years prior. Yes, the United States could be considered the world leader of the cap and trade system- for sulfur dioxide and nitrogen oxide emissions that is- to reduce the occurrence of harmful acid rainfall. In reducing carbon emissions, on the other hand, the US is the follower and the European Union the leader.

The EU's carbon cap and trade scheme is nearly seven years old now and has witnessed two phases with a third phase to be negotiated for 2013 (Buchan, 2009). The first phase was is often what opponents of cap and trade refer to because it was a disaster. The major mistake was in allowing national governments to allocate the carbon credits to companies of their choosing. This allowed major polluters to actually profit because they were given too many credits; they were allowed to continue to pollute and they were given the ability to sell their credits for added income. The second phase ('08-'12) sees a system more stabilized, and much tougher ETS, to the extent that some countries are suing because the system is so rigorous. It is hopeful the third phase will not be too hot nor cold, be just right.

In part 2 of this mini-series, Cap and Trade in the USA will be compared to Europe.

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