This post is by Mark MacLeod, director of special projects for the national climate campaign at Environmental Defense.
Cap-and-trade is the structure of most of the global warming bills being considered by Congress.
The “cap” is the cornerstone of the policy. It is an absolute, nationwide limit on global warming pollution. Congress would most likely establish a cap measured as billions of tons of carbon dioxide (or equivalent) released into the atmosphere each year. Over time, the cap would be lowered to cut emissions enough to avoid the worst consequences of global warming. (See our earlier series for more on how much we need to cut.)
The “trade” part is a market that creates powerful incentives for companies to reduce pollution, and provides flexibility in how companies can meet the limits.
Here’s how it works: