The Origins of "Cap and Trade"

Foreign Policy explores the history of “cap and trade” — the phrase and the concept. The idea has been around since 1967, but the phrase wasn’t coined until 1994, when Joseph Goffman, an attorney for the Environmental Defense Fund, told Congress that a “‘cap-and-trade’ regime … illustrates a compelling strategy for internalizing the environmental costs of energy and electricity production.”[%comments]


It's the cap side of the equation that worries me. It could be set according to political fiat and that would do far more harm than good.


The Idea was Embraced by Republicans in previous administrations as the LEAST COST method to achieve the desired result. Only Today, with the Crackpot Teabaggers, funded by Coal Giants, do we hear Cap-And-Trade disparaged.

The other solution is an OUT RIGHT SHUTDOWN of COAL.

Take your pick.

The Whole South would be BLUE if 65+ voters stopped voting. That's an interesting idea.


It's the trade side of the equation that worries me. it could provide short-term profit to few, undermine the cap agreements and eventually do good to nobody and harm everybody.


Cap and trade is a clever ploy to create a trading market for a fictional resource. (Yes, more fictional than fiat money, blah, blah, blah.) The cap is slated to decrease by government decree, reducing the supply of carbon credits over time. What happens when you artificially reduce the supply of something? (Calling it artificial may be a stretch for a commodity that is artificial to begin with, but bear with me.) Traders and speculators and market makers get rich, while consumers and tax payers foot the bill. Count me out, please.


The problem with cap-and-trade is this: the "caps" are given away free to politicians' cronies.
If I want to build a new factory, I must buy credits. If someone already owns a factory, he is granted some number based on political contributions he's made. That giveaway there is the problem.

An emissions tax is far fairer than a cap/trade scheme. Just start the tax low, and ratchet it up slowly until emissions reach an "acceptable" level.

The only "advantage" cap-and-trade has over an emissions tax is that it helps preserve the status-quo. However, it is inherently unfair, stifles competition, and thereby tends to lead to slower technological progress than an emissions tax would.


I prefer the Cap-and-Dividend idea.

But since it's a short and simple idea without a way for special interests to get a share of federal dollars, it probably won't pass the US Congress.


I must second JoelP. The emmissions tax idea is dead on. De-policitizing the process is absolutely necessary. Give either side of the aisle a nickel and they will take billions.

Joe Smith

The differences between cap and trade vs carbon taxes / fees come down to differences in the assumption about who "owns" the existing emission envelope. Legacy industry, the general public or the government.

Personally I think the government should own it and run a continuing electronic market in expiring tradeable emission rights where the individual rights would say something like:

This certificate represents the right to "emit" one ton of carbon between now and 180 days from initial issue of this series.

Every month the government would start issuing a new series of certificates.

"Emitters" at the wholesale level would have to buy the certificates.

It would be a term of the arrangement that the government would cap the price and at that price be willing to issue very large numbers of certificates. Something like: a certificate will not cost more than $5 per ton in the first year and rise by not more than $2 per ton per year thereafter.

Could even help balance the budget.



I thought it was "cap-on-trade." Anyway, thanks. I guess y'all know that you have done me a favor. Quiet Time.

Bradford C. Riendeau

I think the phrase is older than 1994. I remember hearing it in law school in the very early 80's, along with discussions about preventing development in flood plains. We haven't moved very far in ideas since then and we haven't done very much in the way of making intelligent choices since then.

Hugh Bacon

Great explanation of what Cap & Trade means but no one seems to know the linguistic origin of the term. Cap means hat or short for capital. Trade means to exchange something. How did the two words come together? Who coined the term? Hugh