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PART I
The European Union Emission Trading Scheme is an example of an approach
to dealing with greenhouse gas emissions. Caps are put on the amount of
carbon (CO2) a polluter can emit. Credits are given to
businesses
that reduce their emissions. Credits can also be obtained through
offset programs. Offset programs include projects
like planting trees. Planting trees helps to offset carbon emissions.
Some other examples of offset programs are generating power through
wind, solar or hydro techniques.
Carbon credits obtained through the reduction of emissions or
through offset programs can then be bought and sold on the open market.
If a polluter exceeds their emissions cap, they have to buy carbon
credits. The more companies pollute, the more demand is put on
carbon credits. The greater the demand for carbon credits, the
higher the price of carbon credits. The higher the price of carbon
credits, the more expensive it becomes to pollute. Thus, there is a strong
financial incentive for a business to clean up its act.
Over time, caps are reduced. As caps are reduced, the supply
of carbon credits is reduced, again putting upward pressure on the price.
The result is an overall reduction in emissions.
Emissions Trading, also known as cap and trade, is an
approach to
pollution control. By creating a market place in a commodity exchange,
traders can buy and sell credits related to pollutants.
Resources
California's First Cap-and-Trade Auction, Environmental Defense Fund (2012)
Australia's Carbon Tax, The Membrane domain (2012)
First U.S. CO2 Auction, The Associated Press (2008)