by J. Young

Created on: August 19, 2008

Cap and trade is a system where the government will set a limit to the amount of pollution by an industry, and then equally distribute the right to pollute amongst the companies in that industry. This, ostensibly, creates a market for pollution; that is, those who produce more pollution than the allowed limit will need to purchase their right to pollute in excess from companies who pollute less than the limit. Thus, the company who is polluting in excess will have an incentive to pollute less because there is a cost associated with their excess pollution and companies that pollute less than the limit will have an incentive to further decrease their emissions because the further the company gets under the cap, the more ability it will have to sell-off the difference to the larger polluters.

This all sounds well-and-good, especially when there is the added incentive of a tax break or credit associated with pollution reduction. But the reasoning behind this assumes efficiency in the U.S. marketplace. Though, corporations are notoriously wasteful; and, in terms of environmental efficacy, horribly inefficient. In fact, if the U.S. marketplace were efficient, this argument would be nullified. To maintain consistent and sustainable growth, a corporation would need to realize that the people in their factories cannot work if they're sick from the pollution in the water and air that they rely on to be able to produce. They would realize that clear-cutting of forests, the pollution of water and air (among other wasteful practices) increases the cost of production by, for example, increased medical and sick-leave costs for workers as well as decreased production.

It is clear that there is already an incentive for industry to reduce wasteful practices. They are reliant on their environment for their means of production. Destruction of the natural environment means an increased cost for production. There's also an increasing awareness of the affects of global warming, and consumer awareness of the catastrophic affects of wasteful habits that may hinder a wasteful company's ability to maintain profits. So, the argument that creating a market for pollution, to reduce pollution, seems horribly flawed. In fact, the argument that giving a company the right to pollute through a cap and trade system seems only to benefit a wasteful corporation. One could simply step back and say: 'Look, I paid for my right to pollute, so I don't owe anything else.'

In actuality, pollution inevitably requires some form of cleanup and the burden to clean an area that has been environmentally degraded by a company falls squarely on the shoulders of the taxpayer. A cap and trade system does not stipulate any sort of responsibility for the polluter to be responsible for the end-product of pollution, or the real costs associated with it. This is why it's important to tax a corporation in proportion to their contribution to environmental degradation; and to further tax them to help establish research and development companies that can eliminate their waste altogether. A cap and trade system gives a company the right to pollute alleviating them of any real burden, that is, of course, with the exception of a slight accounting dilemma.

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