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Why Do Emissions Trading Programs Work?

Provide Flexibility

  • Sources can decide the best way to reduce their pollution and collectively maintain total emissions at or below the emissions limit.
  • Regulators can set more ambitious pollution reduction goals. Because each source can decide the best way to reduce emissions, they can choose lower cost options.  This enables a lower emissions limit, or a greater reduction in pollution, at similar or lower costs than traditional forms of emissions limits.
  • Regional emissions trading programs complement state and local efforts to address local air quality concerns, giving state and local authorities the flexibility to pursue stricter limits on sources through local programs.

Protect Human Health and the Environment

  • Because there is a permanent limit on the amount of pollution that sources can emit, the environment and human health are protected. Even when circumstances in the industry change, such as increasing demand for electricity, sources are always restricted to how much total pollution they can emit because the pollution limit does not change.

Provide Economic Incentives

  • The pollution limit and the ability to trade allowances provide an economic incentive for sources to seek lower-cost approaches to reduce their emissions. The pollution limit means that a fixed number of allowances are available, so sources that can reduce pollution at a lower cost or sooner than other sources can sell their extra allowances to the other sources, or can save them for use in the future.
  • Allowances can also be set aside for specific sources, to address certain economic or policy priorities or to encourage specific actions. For example, the Cross-State Air Pollution Rule reserves a number of allowances in a new unit set-aside that provides a resource for new sources to receive allowances.

Ensure Accountability

  • Accurate and timely reporting and program transparency promote accountability. Sources are required to regularly report their emissions.  Data related to emissions and information on allowances, trading, and compliance are publicly accessible.  This allows the public to quickly and easily determine which sources are complying with the program.

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