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Essentials
Cap and trade is an environmental policy tool that also accurately measure and report all emissions in a timely
delivers results with a mandatory cap on emissions manner to guarantee that the overall cap is achieved.
while providing emission sources flexibility in how they
comply. Successful cap and trade programs provide strict When Is Cap and Trade Effective?
environmental accountability without inhibiting In EPA’s experience, cap and trade programs have proven
economic growth, and reward innovation, efficiency, highly successful in the context for which they are best
and early action. suited: reducing emissions on a regional or larger scale
from multiple sources that exhibit a range of control
What Is Cap and Trade? costs. While achieving significant reductions on a
Cap and trade is a policy approach for controlling large regional scale, cap and trade programs can deliver
amounts of emissions from a group of sources. The substantial air quality improvements. As effective as these
approach first sets an overall cap, or maximum amount of programs are, however, they may not be the solution to
emissions per compliance period, for all sources under the every problem. For example, eliminating localized
program. The cap is chosen in order to achieve a desired concentrations of pollution is not their primary purpose.
environmental effect. Authorizations to emit in the form of The cap and trade approach is best used when:
emission allowances are then allocated to affected sources, • the environmental and/or public health concern
and the total number of allowances cannot exceed the occurs over a relatively large area;
cap. Individual control
requirements are not specified • a significant number of
sources are responsible for
for sources; instead, sources The remarkable efficiency the problem;
report all emissions and then
surrender the equivalent and reduced costs of a cap and trade • the cost of controls varies
number of allowances at the from source to source; and
end of the compliance period.
program should not overshadow the
• emissions can be
Allowance trading enables purpose of the cap – that is, consistently and
sources to design their own
compliance strategy based on to yield public health and accurately measured.
their individual circumstances
while still achieving the
environmental results. Under the right circumstances,
overall emissions reductions cap and trade programs have
required by the cap. Affected proven extremely effective,
units can tailor their compliance plans to each source. providing substantial emission reductions, complete
Compliance strategies in well-designed cap and trade accountability and unprecedented data quality and
programs require no prior approval, allowing sources to access. Existing cap and trade programs – the Acid Rain
respond quickly to market conditions and government Program and the NOx Budget Program – have the force
regulators to remain focused on results. Sources must of federal and state standards behind them, including
national health-based air quality standards. This ensures
Power Generation SO2 Emissions that local public health needs are met in conjunction with
With and Without the achievement of regional or national emission reductions.
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Acid Rain Program
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Guiding Principles for
Without
Acid Rain
Program
Program Design
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Three features critical to designing and implementing
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