Is it Time to Fully Embrace Cap and Trade?

Image Source: Climate and Ecosystems Change Adaption

Guest Writer: Teresa Leatherow

Environmental impacts, particularly carbon emissions, have long since been a concern of both government and business. Recent mentioning of possible implementation of a United States cap-and- trade program may be the answer to years of debate on this topic. Economic rationale for a carbon price is stronger than it ever has been for the United States, as one of the country’s most significant global rivals, China, will be imposing a carbon-pricing plan next year (Carbon Tax Center). In addition to maintaining a global competitive advantage, big market players and investors are starting to favor carbon pricing to achieve clarity on carbon emissions. Since there currently is not a single policy in place for carbon emissions, companies are at great risk of making dangerous investments.

The Wall Street Journal’s “Journal Report”, Innovations in Energy, said “companies thrive on transparency and predictability, and they fear that the current state of carbon regulations is too convoluted, making planning difficult and exposing them to risk.” The concept of transparency throughout all company operations has become a very important criterion for business, and many companies see a price on the emission of carbon as a way to resolve this uncertainty. Further, putting a price on carbon would help to reflect the true impact of carbon emissions on the world, which would nudge companies to make more economically efficient decisions regarding their use of fossil fuels.

According to the Environmental Defense Fund, “cap and trade is the most environmentally and economically sensible approach to controlling greenhouse gas emissions, the primary driver of global warming” (Environmental Defense Fund). A carbon price can be achieved best through cap-and-trade, which is a government mandated, market-based approach to controlling emissions. This is done while also providing economic incentives for achieving targeted reductions. The “cap” sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere; the “trade” creates a market for carbon allowances. These allowances “force” companies to innovate in order to meet or come under their allocated limit, ultimately driving compliance.

What has always been dubbed as “business as usual” has finally caught up with industry and the time to consider the negative environmental impacts that business operations are responsible for is now (Helm, 2015). Embracing a cap-and-trade policy would be instrumental in quantifying the risks associated with emissions more precisely, which would ultimately benefit business, government, and by extension- all of society.


“Home.” Carbon Tax Center. N.p., n.d. Web. 05 Dec. 2016. “How Cap and Trade Works.” Environmental

Defense Fund. N.p., n.d. Web. 6 Nov. 2016.

Helm, Dieter. Natural Capital: Valuing Our Planet. New Haven: Yale UP, 2015. Print.

Jaffe. “The Coming Price on Carbon.” Wall Street Journal 14 Sept. 2016, Journal Report sec.: R1-R2. Print.

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