Carbon cap and trade definition
A cap and trade system is a market-based approach to controlling pollution that allows corporations or national governments to trade emissions allowances under an overall cap, or limit, on those emissions. Learn More About IT: By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. A risk map, also known as a risk heat map, is a data visualization tool for communicating specific risks an organization faces.
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For example, RGGI covers CO 2 from power plants while California covers several greenhouse gases from power plants, manufacturing facilities, transportation, and buildings.
For administrative ease, programs tend to include only the largest sources of greenhouse gases in the economy. Target — What level of emissions reduction will be required and by when? Allowance Allocation — How will allowances be distributed? Governments can auction allowances, give them away for free to covered facilities, or some combination of the two. Auctioning generates revenue that can be used for climate or other purposes.
Both banking and borrowing help avoid price spikes. Borrowing, however, can create supply constraints in future years. Most programs allow banking but not borrowing. Compliance Periods — Must facilities surrender allowances every year or only every few years? Multi-year compliance periods can reduce price volatility.
RGGI and California both use three-year compliance periods with partial annual surrender obligations. Offsets — Can companies use verified emissions reductions generated outside the cap to comply? Offsets can lower the overall costs of meeting the cap. For instance, agricultural and forestry projects can often reduce emissions at lower cost than industrial facilities. To be effective, offset projects must undergo rigorous verification procedures to ensure that emissions are actually reduced, and that only one entity takes credit for the offset.
Market Integrit y — How will market manipulation be avoided? A transparent, secure registry can track transactions and prevent theft and double counting of allowances. In addition, most jurisdictions select independent experts to review transaction data and watch for fraud. Cap and trade and a carbon tax are two distinct policies aimed at reducing greenhouse gas GHG emissions.
Each approach has its vocal supporters. Those in favor of cap and trade argue that it is the only approach that …. View Details Download pdf, KB. Cap and Trade Basics. Cap and Trade in Action Today, cap and trade is used or being developed in all parts of the world.