Chasing after riches and developing technologies with the intention of increasing comfort levels, with varying degrees of success, often leads to the negative ways in which humans affect the environment. Arising from this have been creative programs designed to minimize or eliminate these effects. The overwhelming evidence that humans are accelerating climate change and altering the oceans chemistry through carbon dioxide emissions has demanded we find ways to reduce this pollutant. When examining how carbon credits, as part of a cap and trade system, can protect our environment it is helpful to review the basics of how they work.
Setting an emissions cap for the region regulated under the program is the basic principle of how reductions are met in order to minimize how humans affect the environment. This is done through a market based system of allotting allowances or credits to regulated institutions. These are basically licenses to emit the pollutant. They are either auctioned off, with a minimum starting price, or sold at a set price to get them onto the market. Institutions who are polluting under their allotted amount can then sell these credits to those that are over-polluting. A finite number of credits are issued, thus ensuring the goal to protect our environment by “capping” the pollution. Institutions must make a choice to either reduce emissions or buy more credits. If they choose to reduce, they must decide exactly how they will do this. For example, should they achieve their goal through efficiency measures, or through utilizing alternative technologies? It becomes economically necessary to consider the environment under a cap and trade system. Further understanding of how carbon credits may work in the U.S. to protect our environment can be obtained by looking at a current success.
The Clean Air Act of 1990 included a sulfur dioxide and nitrogen oxide cap and trade scheme to protect our environment from acid rain. The program set out to reduce sulfur dioxide to or below 9.5 million tons per year by 2010. The U.S. Environmental Protection Agency (EPA) states this goal was met in 2007, when 8.95 million tons entered the atmosphere. Nitrogen Oxide was cut by 3.3 million tons during this same time. The EPA also states that a 2003 Office of Management and Budget study says the program benefits exceeded costs “by more than 40 to 1.” The hope is that carbon credits will be equally or more successful.