Cap and Trade: The Other Way to Price Pollution

Abstract

This chapter reviews another way to put a price on pollution: establishing a cap and trade program. It describes what cap and trade is, how it puts a price on pollution, and its use around the world. The chapter then goes on to make a case for why a carbon tax is a better approach than cap and trade for pricing carbon pollution in the United States. While either cap and trade or a carbon tax is preferable to the other options discussed in chapter 4, a carbon tax still has significant advantages over cap and trade.