Cap and Trade is a market-based policy tool for protecting human health and the environment. A cap and trade program first sets an aggressive cap, or maximum limit, on emissions. Sources covered by the program then receive authorizations to emit in the form of emissions allowances, with the total amount of allowances limited by the cap. Each source can design its own compliance strategy to meet the overall reduction requirement, including sale or purchase of allowances, installation of pollution controls, implementation of efficiency measures, among other options. Individual control requirements are not specified under a cap and trade program, but each emissions source must surrender allowances equal to its actual emissions in order to comply. Sources must also completely and accurately measure and report all emissions in a timely manner to guarantee that the overall cap is achieved.

A Well Designed Program Provides

  • Strict limits on emissions yielding dramatic pollution reductions;
  • High levels of compliance, transparency, and complete accountability;
  • Regulatory certainty and flexibility for sources;
  • Incentives for early pollution reduction and innovations in control technologies;
  • Compatibility with state and local programs;
  • Significant, widespread, and guaranteed human health and environmental benefits;
  • Efficient use of government resources, and
  • More benefits at less cost. 
MNN Public Information from the U.S. Environmental Protection Agency