When cap and trade first appeared in the 1980s to limit pollution - in this case, acid rain - it was a pariah to nearly everyone who looked at it, at times described as ”morally bankrupt” or even “a license to kill.”
Environmental groups didn’t like its market mechanism that let polluters pay to pollute and businesses thought it would shut them down. But a few environmental players who wanted to move beyond the “sue the bastards” approach bought the issue to the table and made it work. This rich history, which sheds light on the current debates over cap and trade, is recounted in a recent Smithsonian article.
The basic premise of cap-and-trade is that government doesn’t tell polluters how to clean up their act. Instead, it simply imposes a cap on emissions. Each company starts the year with a certain number of tons allowed—a so-called right to pollute.
But it took a leap of faith to get this started. The article tells how Environmental Defense Fund “president Fred Krupp phoned Bush’s new White House counsel—Boyden Gray—and suggested that the best way for Bush to make good on his pledge to become the ‘environmental president’ was to fix the acid rain problem.” The best way to achieve that was emissions trading.
After a number of battles, the plan was finally implemented in 1985 and emissions fell ahead of schedule.
Cap-and-trade—a term that first appeared in print that year—quickly went “from being a pariah among policy makers,” as an MIT analysis put it, “to being a star—everybody’s favorite way to deal with pollution problems.”
The law cost utilities $3 billion, rather than $25 billion as estimated. It also cut acid rain in half and generated an estimated $122 billion in health and environmental benefits.