Through these two case studies, four common principles emerge that clearly show why cap and trade works. Cap and trade sets firm targets. Whether the goal is reducing air pollution or rebuilding fish stocks, the cap goes to the heart of the challenge. When we identify pollutants that harm the environment or threaten public health, a cap sets a firm and permanent limit, lowering the amount of these pollutants in our world. When we take too many fish out of the sea to ensure good fishing in years to come, the cap decreases the total allowable catch.
Caps sets clear limits and quantify the challenge for all participants.
Cap and trade recognizes value where it exists. When a power plant reduces pollution below an assigned limit, that has value for the environment. Creating a market for surplus allowances recognizes this value. Similarly, halibut swimming in Alaskan coastal waters are a valuable resource. Cap and trade lets the marketplace work.