Why Do Emissions Trading Programs Work?
Effectively designed emissions trading programs provide:
- Protection for human health and the environment.
- Flexibility to enable individual emissions sources to tailor unique compliance paths specific to their circumstances.
- Accountability for reducing and reporting emissions.
Protect Human Health and the Environment
Emissions trading programs protect human health and the environment. They work by setting an overall cap on the total amount of emissions allowed by a group of emissions sources. Even when changes in electricity demand occur or more emissions sources come online, emissions sources are required to stay below the overall emissions cap.
Provide Flexibility
Flexibility is built into emissions trading programs in various ways. Emissions sources can decide the best way to maintain emissions at or below the emissions cap, including choosing compliance alternatives such as installing different types of controls, switching fuels, or reducing utilization. Because each emissions source can decide the best way to reduce emissions, they can choose the most cost-effective options for their specific circumstances.
Drive Innovation
The emissions cap and the ability to trade allowances provide an economic incentive for emissions sources to innovate and reduce emissions earlier and more efficiently so they can sell surplus allowances or save allowances for future use. As a program evolves, innovation in emission reduction approaches can enable the regulator to lower emissions caps to achieve greater collective emission reductions at similar or lower costs than at the start of the program.
Allowances can also be set aside for specific emissions sources to address certain economic or policy priorities or to encourage specific actions. For example, the Cross-State Air Pollution Rule reserves allowances for new emissions sources. Other programs provide set-aside allowances as economic incentives for energy efficiency and renewable energy.
Ensure Accountability
Emissions trading programs provide transparency and accountability by collecting accurate and timely data and making it available to the public. Emissions sources are required to report emissions data along with information on allowances and trading, allowing EPA and the public to easily determine which emissions sources are meeting their obligations under the program. This adds another level of transparency and reinforces program compliance. Compliance rates with EPA’s emissions trading programs have been nearly perfect.
For more information, see emissions trading program results.