Comparison of Cap-and-trade With Other Methods of Emission Reduction
Cap-and-trade, offsets created through a baseline and credit approach, and a carbon tax are all market-based approaches that put a price on carbon and other greenhouse gases, and provide an economic incentive to reduce emissions, beginning with the lowest-cost opportunities.
The textbook emissions trading program can be called a "cap-and-trade" approach in which an aggregate cap on all sources is established and these sources are then allowed to trade emissions permits amongst themselves to determine which sources actually emit the total pollution load. An alternative approach with important differences is a baseline and credit program.
In a baseline and credit program polluters that are not under an aggregate cap can create permits or credits, usually called offsets, by reducing their emissions below a baseline level of emissions. Such credits can be purchased by polluters that have a regulatory limit.
Read more about this topic: Emissions Trading
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