Can cap and trade work in the US?

Planet Money

NPR

Business, News

4.6 • 29.8K Ratings

🗓️ 9 October 2024

⏱️ 28 minutes

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Summary

Recently, the state of Washington embarked on an ambitious new plan to combat climate change. Taking a page from economics textbooks, the state instituted a statewide "cap and trade" system for carbon emissions. The state establishes a cap on the total amount of carbon pollution it is willing to allow each year, and then gives away or auctions off carbon emission permits that add up to that total. Companies can then trade those permits on the open market.

Economists love cap and trade plans because they establish a limit on carbon emissions while letting the market find the most efficient way for decarbonization to occur. But cap and trade has had a hard time catching on, especially in the U.S.

The stakes are high for Washington's new plan. If it succeeds, it could convince other states to implement their own versions, but if it fails, it might serve as a cautionary tale. On today's show, we take a look at how Washington's grand experiment with cap and trade is faring.

This episode was hosted by Keith Romer and Kenny Malone. It was produced by Emma Peaslee and edited by Emily Siner. It was fact checked by Sierra Juarez and engineered by Valentina Rodriguez Sanchez. Alex Goldmark is Planet Money's executive producer.

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Transcript

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0:20.0	Kenny, when economists consider the problem of climate change, you know what kind of problem
0:28.4	they see? Economic problem would be my guess Keith? Yes?,000% an economic problem because when they
0:36.1	look at climate change wearing their economics tinted glasses what they see is a
0:41.2	classic market failure so to fix climate change all you have to do is fix the market.
0:47.3	Yeah and you know look the idea is that for the most part these big polluting companies and you know regular people driving
0:54.9	their cars, they're doing damage to the climate that they do not pay for directly.
1:00.0	But perhaps if they did pay for all that damage they would start making some
1:04.0	different choices me thinks yeah the price of emitting carbon is too low so one
1:09.3	thing you could do is raise the price by slapping on a carbon tax. This solution is kind of an
1:15.9	economist's favorite, but carbon taxes, tough sell politically new taxes not
1:21.0	always that popular. Which then leads us to economists, I guess second favorite solution to this problem,
1:27.0	what is called a cap and trade system.
1:30.0	Still fixes the market failure, theoretically, but no one has to say the word tax out loud.
1:35.3	Okay, here is how cap and trade works. Basically, the government gets to say,
1:41.5	we're only going to allow the total amount of carbon emissions.
1:45.4	The government puts a cap on the total amount.
1:48.6	And then it issues that amount of permits to pollute,
	...

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