Cap and Trade Systems and the Environment

Ryan McKenna


Jason Mathers and Michelle Manion summarize in their article "How It Works: Cap-and-Trade Systems" the function of a cap and trade system in the American market, particularly with regards to the CO2 market. They describe how the system would reduce emissions, save money, and increase profitability of power plants that can cheaply reduce their emissions. To summarize, "In general, cap-and-trade systems work best when the emissions have a negative impact on broad geographic areas or, in the case of heat-trapping emissions, globally. These systems are also successful when the cost of recucing emissions among polluters varies, and when emissions can be consistently and accurately measured." The flexibility of the system, as opposed to a pollution tax or a strict reduction across all plants, results in guaranteed emissions reductions.

Dallas Burtraw and Erin Mansur discuss the Environmental Effects of SO2 Trading and Banking in their articled titled the same. They talk about the Pro's and Con's of a cap and trade system, specifically using a computer model that estimates health benefits, reduction in sulfur deposition and cost savings. The results they found were that Trading results in health related benefits, a decrease in sulfur deposition, and a significant cost savings. Banking, or reducing emissions below the cap to use later, changes the timing of emissions but the geographic consequence they found was varied and they also found that banking emissions increased the installation of scrubbers in power plants.

Class Discussion



Burtraw, D., and Mansur, E., "Environmental Effects of SO2 Trading and Banking," Environ. Sci. Technol. 1999, 33, 3489-3494

Mathers, J, and Manion, M., "How It Works: Cap-and-Trade Systems," Catalyst Magazine, Union of Concerned Scientists, Vol. 4, Number 1, Spring 2005

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last updated 4/10/07