GEF

Unit 8  |  Government and Sustainability 173 8.3  Cap and Trade and Pollution Taxes Governments can also use economic incentives to support sustainability. In an effort to control and reduce greenhouse gas emissions, some governments have experimented with an economic incentive known as Cap and Trade . In Cap and Trade, the government sets a cap , or upper limit, on the amount of greenhouse gases a company may produce. If a company exceeds the cap, it must pay a penalty. The govern- ment also supports a market where companies may trade their emissions allowance. That means that if one company is under the cap, it may sell its extra allowance to a company that wants to exceed the cap. This provides an economic incentive to companies that stay below the cap. The European Union’s Emissions Trading System (EST), which launched in 2005, is the world’s largest implementation of a greenhouse gas Cap and Trade. It has had some success, but is criticized for failing to meet goals, uncertain and changing policies, and causing an increase in energy costs. Emission trading has also been criticized for prioritizing carbon offsets , such as reforestation programs in developing countries, rather than requiring direct greenhouse gas emission reductions from developed countries. Pollution taxes are another economic incentive used by gov- ernments. In the United States, the Polluter Pays Principle was a vital component of the EPA Superfund program , which is responsible for cleaning up abandoned hazardous waste sites. The revenues raised by taxing polluting compa- nies allowed extensive cleanup of heavily polluted sites until the tax was allowed to lapse in 1995. Many countries, such as Australia, now have carbon taxes assessed on the use of fossil fuels. Many advocates and economists believe that taxes on unsustainable products and practices could be one of the most effective tools in promoting sustainability. ECONOMIC INCENTIVES Money or prizes used to encourage individu- als or businesses to act a certain way. CAP AND TRADE A system that sets an upper limit on the amount of greenhouse gases an orga- nization may produce but allows further capacity to be bought from other organiza- tions that have not used their full allowance. CARBON OFFSETS A reduction in carbon emis- sions in one place made to compensate, or offset, car- bon emissions taking place somewhere else. POLLUTER PAYS PRINCIPLE A legal concept in which the party responsible for pollution or environmental damage pays the cost. SUPERFUND PROGRAM A U.S. federal program responsible for cleaning up abandoned hazardous waste sites.