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How effective have cap-and-trade systems been at reducing greenhouse gas emissions, and what data is available to support these claims?

Alicia Wallis

Cap-and-trade systems have increased in popularity as a tool for reducing greenhouse gas emissions. A cap-and-trade system is a market-based approach where the government sets a limit, or cap, on emissions and then issues permits, or allowances, which companies can trade with each other. The cap and the trade of allowances create an economic incentive for companies to reduce their emissions. Companies that are able to reduce their emissions below their cap can sell their unused allowances to those who are unable to reduce their emissions.

One example of a successful cap-and-trade system is the European Union Emissions Trading System (EU ETS). This system was launched in 2005 and applies to approximately 11,000 power plants and industrial facilities in the EU. According to data from the European Commission, the EU ETS has been effective in reducing greenhouse gas emissions. From 2005 to 2019, emissions from installations covered by the system decreased by 29%, while the EU’s gross domestic product increased by 61%. This shows that economic growth can be achieved without increasing emissions.

Another example is the Regional Greenhouse Gas Initiative (RGGI) in the United States. RGGI is a cap-and-trade system covering power plants in the northeastern states. According to data from RGGI, the program has reduced emissions by more than 45% since its inception in 2009. A recent report from Acadia Center, a non-profit organization, found that the RGGI program has saved an estimated $4.2 billion in health and environmental benefits since its inception.

There are also studies that have found that cap-and-trade systems can be a cost-effective way to reduce emissions. For example, a study by the International Emissions Trading Association found that an international cap-and-trade system could reduce the cost of meeting climate goals by up to 80%.

Overall, the data suggests that cap-and-trade systems can be effective at reducing greenhouse gas emissions. The success of these systems depends on a few factors, including the design of the system and the level of the cap. However, if implemented correctly, cap-and-trade systems can be a useful tool in the fight against climate change.