Capping It Off

"Cap and trade" began not as a catchphrase, but as a simple concept: that the market could help curb pollution. Its roots date to the 1960s, when U.S. government scientists came up with a scheme for regulating sulfur dioxide emissions through setting a cap and then trading the right to emit over the limit. By the 1970s, environmentalists — and their politician allies — embraced the concept, and it became standard in regulatory legislation. Now, as climate change makes the regulation of carbon emissions crucial, cap and trade may be more necessary than ever, if global wrangling doesn’t do it in first. 

1967: Ellison Burton and William Sanjour, two computer modelers for the U.S. National Air Pollution Control Administration, imagine cap and trade (though not the term) as a way to cut down sulfur dioxide emissions from power plants.

1968: University of Toronto economist John Dales publishes Pollution, Property and Prices, proposing an intellectual framework for emissions trading. He and another early architect of the idea, economist Thomas Crocker, later express skepticism that cap and trade can be successfully used to regulate carbon.

1976: U.S. states have difficulty meeting the targets imposed by the 1970 Clean Air Act, so the Environmental Protection Agency (EPA) allows certain environmental improvements, or "offsets," a company can make to help meet its targets. The idea is incorporated into the 1977 Clean Air Act amendments, sponsored by Rep. Paul Rogers (D-Fla.).

1980s: The EPA and the U.S.-based Environmental Defense Fund (EDF) push for cap-and-trade programs to phase out lead in fuels and control the sulfur dioxide emissions that cause acid rain. Both programs are successful. Meanwhile, European countries move to taxation to regulate emissions rather than cap-and-trade systems.

1990s: China begins to experiment with a cap-and-trade system to cut down on sulfur emissions from power plants.

October 5, 1994: EDF becomes among the first to coin the phrase "cap and trade." The group’s attorney, Joseph Goffman, testifies before the U.S. Congress that a "’cap-and-trade’ regime … illustrates a compelling strategy for internalizing the environmental costs of energy and electricity production."

Fall 1997: In anticipation of Kyoto climate negotiations, U.S. President Bill Clinton‘s administration unveils an emissions trading proposal. As the summit ends, a cap-and-trade scheme that puts emissions limits on participating countries is agreed upon: the Kyoto Protocol. Later, the United States fails to ratify Kyoto.

2000: Shell begins a voluntary cap-and-trade program aimed at cutting emissions 2 percent from their 1998 levels within two years. Because the company has a broad international reach, the concept of cap and trade begins to spread across the world.

2005: The European Union’s Greenhouse Gas Emission Trading Scheme comes into effect. By 2009, the market amounts to 3.8 billion tons of carbon, equivalent to 40 percent of the region’s emissions. But over that time, the price of carbon falls dramatically, a collapse blamed on the initial "cap" being larger than emissions levels at the time.

2007: The U.N. Intergovernmental Panel on Climate Change definitively blames rising global temperatures on human activity and explores ways to tackle the problem, including cap and trade. The term "cap and trade" takes off in the international press, appearing about twice as often as in 2006.

February 25, 2009: One month after his inauguration, U.S. President Barack Obama addresses Congress, urging the passage of cap-and-trade legislation "to truly transform our economy, to protect our security, and save our planet from the ravages of climate change."

June 26, 2009: The Waxman-Markey energy bill, which incorporates cap and trade, passes the U.S. House of Representatives. But a backlash is also building, with doubters saying the bill will limit growth.

December 2009: A schism between the developed and developing world helps prevent the Copenhagen talks from producing compulsory emissions targets. "Since Kyoto we have been focused on industrialized nations, and as a result cap and trade does not fully integrate the developing world," Rwandan President Paul Kagame cautioned before the talks.