Cap and trade is a policy tool that places an upper limit on emissions and establishes a system of permits which firms or individuals may purchase or trade in order to have the right to pollute. The permits are traded in a market according to the laws of supply and demand. According to the United States Environmental Protection Agency, successful cap and trade programs reward innovation, efficiency, and early action (EPA). By this model, firms who increase their efficiency will be able to spend less—or nothing at all—on the right to pollute because the rate of pollution produced per unit manufactured will decrease.
Although cap and trade has the potential to reduce emissions, it amounts to a veritable tax on firms in the market. Of course, a laissez-faire attitude is what permitted reckless firms to pollute the environment in the first place, but on the complete opposite, is the solution to this problem a total government tax? Ultimately, the extra cost will be passed to consumers. Should consumers have to pay for the failure of America’s business schools to inculcate social responsibility?
In 1997, leaders of most developed industrialized nations met to sign the Kyoto Protocol which would develop a cap and trade system for six major greenhouse gasses to be effective in 2005(UNFCCC). The United States did not sign the agreement. However, in 2009 the Obama administration in concert with democratic leadership in both houses of Congress are trying to pass a carbon tax for the United States, which among its provisions, calls for an import duty on goods imported from developing (polluting) countries. Washington think tanks and non-governmental organizations are using fear tactics, such as describing the melting of the polar ice, to pass this kind of legislation (Washington Post). The environmental policy negotiator for Bill Clinton, Senator Timothy Wirth, has come forward in describing such Carnegie Institution rep...