Page 13 - Environmental_Green Technologies

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2.2 Alternatives for Green Growth

Examples of Types of Policies

Cap and Trade

Cap and Trade is a general term for government regulatory program with a market approach, created and
designed with the aim to limit (‘’Cap’’) or control the level of emissions that pollute by providing economic
incentives.

Governments set the cap across industries, sectors or the whole economy, adding penalties for violations
or non-compliance. The main greenhouse emitters that are crapped are carbon dioxide and related
polluters that contribute for global warming. The cap is splitted into allowances, each allowance permitting
a company to emit a ton of emission. The allowances are distributed by the governments on free bases or
through auctions. Furthermore, caps decline overtime, pushing companies to reduce their emissions in
a more effective manner.

The trade refers to the market part of the policy, the buying and selling process performed by companies
in order to acquire allowances that would let the company emit a certain amount. Being a process in which
supply and demand set the price, it incentives the companies to save money by reducing or cutting down
emissions in the most-effective way. The trade gives flexibility to the companies, being able to sell
allowances by reducing their own pollution level faster, and sell it to companies that pollute more. It
supposes an incentive for companies to invest in R&D and innovation, to change their processes and cut
pollution (EDF, 2019).

The Cap and Trade system is a market system, value for emissions are exchanged and it incentives com-
panies to invest in cleaner technologies, not to buy permits and have higher costs. However, on the other
hand, it is considered that if governments decide to set a high level of cap, it might have a negative effect
and lead to higher emission of polluters (Energia y Sociedad, 2019).

Source: Cap and Trade (Gouvernement du Québec, 2019)