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Cap and Trade 101: A Climate Policy Primer

In Cap and Trade 101: A Climate Policy Primer, Sightline sorts out the details on what's emerging as the most popular and comprehensive policy solution to the enormous challenge of climate change.

Cap and Trade 101:  A Climate Policy Primer

Cap-and-trade systems, which have the potential to be the most powerful, comprehensive, and fair policy solution for addressing our enormous shared challenge of climate change, have quickly emerged as the focus of climate policy discussions in the Northwest and across the country. President Obama has made it clear that establishing a cap-and-trade program is a national priority.

If we create the right kind of cap-and-trade system, Sightline's primer argues, we can not only slash emissions, but speed the transition to a clean energy economy that puts the interest of people before interests of polluters. This primer explains what cap and trade is, how it works, and how it can protect families across the region.

Sightline's primer is "A must read for Northwest elected officials who want to understand the nuances of fair, equitable climate policy. I highly recommend it," says Washington State Senate Majority Leader Lisa Brown.

Download Cap and Trade 101: A Climate Policy Primer (pdf)

Also available:
Cap and Trade 101 in Two Pages: An Executive Summary (pdf)

Cap and Trade in 2009 Webinar (link to recording)
Climate Fairness Blog Series


Included in Cap and Trade 101:

What is Cap and Trade?

In short, the “cap” is a legal limit on the quantity of greenhouse gases that a region can emit each year and “trade” means that companies may swap among themselves the permission – or permits – to emit greenhouse gases.

Cap and trade commits a region to responsible limits on global warming emissions and gradually steps down those limits over time. Setting commonsense rules, cap and trade sparks the competitiveness and ingenuity of the marketplace to reduce emissions as smoothly, efficiently, and cost-effectively as possible.

What Makes Cap and Trade Work Best?

  • Comprehensive scope: All major sectors of carbon emissions -- such as Transportation, the largest emitted of greenhouse gases in the Northwest -- should be included under the cap. This makes the cap as effective as possible and ensures a fair playing field for those covered by the cap.
  • Upstream regulation: The system operates where fossil fuels enter the economy. Upstream regulation means that fewer than one-tenth of one percent of businesses interact with the system
  • Auctioned permits: To prevent unfair windfall profits for big energy companies at the expense of consumers, pollution permits should be sold at public auctions, not given away for free to polluters.
  • Auction revenues protect in-state families: Revenues can be invested in community benefits like job training, energy efficiency, and renewable energy production, putting the state at a competitive advantage in a growing clean-energy economy.


Why Not Give Away Permits?

Put simply, giving away free permits is the worst program design for consumers. Cap and trade puts the same price on climate pollution whether the permits are given away or auctioned. The only difference—an extraordinarily important one—is who gets the extra money that consumers are paying for energy: fossil-fuel companies or in-state families and communities?

Giving away permits is just like handing out money, taking billions of dollars out of the pockets of energy consumers and handing them to energy companies.


Sightline's cap-and-trade primer also includes sections on:

  • How to evaluate the efficiency, effectiveness, and fairness of a cap-and-trade system
  • What about offsets?
  • What happens to energy prices?
  • Carbon tax vs. cap and trade?
  • How to build in protections for working families
  • Four ways to make sure cap and trade funds go to local economies

Sighline's Cap and Trade 101 is written by Sightline executive director Alan Durning, researchers Eric de Place and Clark Williams-Derry, and communications strategist Anna Fahey.

Media contact: Eric Hess,
206-447-1880, ext. 101 

More information:

Publication date: 09/17/2008 | Topic(s): Energy & Climate | Pages: 37 | Publication type: Report
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