How cap and trade systems work How does a cap and trade system actually reduce pollution?
Conceptually, a cap and trade system can be visualized as an enormous game of musical chairs. The chairs represent the ability to emit some pollutant, in this case carbon dioxide. Before a cap is placed, there is an unlimited number of chairs, so anyone can emit as much carbon dioxide as they want, and none of the chairs are reserved. The government places a cap on the amount of carbon dioxide that can be released. This is like limiting—capping—the number of chairs in the game, with each chair representing the right to emit, say, a ton of carbon dioxide. If a firm wants to burn fossil fuels, it will have to get one of the chairs. Effectively, the game has changed from one where there are unlimited number of seats and general admission, to one with a restricted number of chairs with reserved seating. At this point, anyone who wants to emit carbon dioxide needs to get a the right to occupy a chair. Imagine Xcel Energy wants to burn coal in a power plant. It needs a certain number of chai
