Cap and Trade is a market-based mechanism used by policy makers to implement emissions reductions. The program offers economic incentives to pollutant emitters instrumental in achieving reductions targets. In a cap and trade program, a cap or maximum emission limit is set. Emitters/sectors are allocated a fixed number of emissions allowances, each allowance permits the emitters to emit specified amount of emissions. Companies that need to increase their emission allowance must buy credits from those who pollute less. In other words, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. For trading purposes, one allowance or certified emissions reduction ( CER ) is equivalent to one metric tonne of carbon dioxide emissions.

The first cap-and-trade in the US  on GHG emissions was launched in Sep 2008. Nine Northeast states started the Regional Greenhouse Gas Initiative ( RGGI ) to limit emissions of carbon dioxide from power plants to 10% below their 2009 allowances by 2018, in the absence of policy guidelines from the Bush administration who dismissed the binding targets by the Kyoto Protocol on the US as too costly. The group plans to utilize the money raised from auctioning of the emissions allowances on improving energy efficiency and alternative energy strategies.

“Officials are most pessimistic about his energy and global warming plan, with many aides doubting he will win passage of a cap-and-trade emissions reduction system, which is strongly opposed by business and Republicans,” Reality Hits Obama Express: Politico.com/0409/20977