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The Greening of IT
56 How Companies Can Make a Difference for the Environment

emissions without putting key U.S. industries at a competitive disadvantage.
The regulations in the United States would be similar to those in Europe and
would establish a cap-and-trade system, limiting greenhouse gas emissions
while allowing companies to buy and sell the right to emit specified amounts
of pollution. The United States is viewed globally as a laggard on climate
change because, alone among major nations, it chose not to ratify the 180-
nation Kyoto treaty. The 1997 accord required advanced nations to reduce
carbon emissions below 1990 levels but exempted developing countries, such
as China, from reducing greenhouse gas output.
The cap-and-trade system is an administrative approach that controls pol-
lution by providing economic incentives for achieving reductions in the
emissions of pollutants. In this system, a central authority (usually a govern-
ment or international body) sets a limit or cap on the amount of a pollutant
that can be emitted. Companies or other groups are issued emission permits
and are required to hold an equivalent number of allowances (or credits) that
represent the right to emit a specific amount. The total amount of allowances
and credits cannot exceed the cap, limiting total emissions to that level.
Companies that need to increase their emissions must buy credits from those
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who pollute less. The transfer of allowances is referred to as a trade. In effect,
the buyer is paying a charge for polluting, whereas the seller is rewarded for
having reduced emissions by more than was required. Thus, in theory, those
companies or other groups that can easily reduce emissions most cheaply will
do so, achieving the pollution reduction at the lowest possible cost to society.
Active trading programs exist for several pollutants. For greenhouse gases,
the largest is the European Union Emission Trading Scheme. In the United
States, a national market currently reduces acid rain and several regional mar-
kets to reduce nitrous oxide. Markets for other pollutants tend to be smaller
and more localized.
Carbon trading is sometimes seen as a better approach than a direct carbon
tax or direct regulation. By aiming solely at the cap, trading avoids the con-
sequences and compromises that often accompany taxes and regulations. It
can be cheaper and politically preferable for existing industries because the
initial allocation of allowances often includes a grandfathering provision
where rights are issued in proportion to historical emission levels. In addi-
tion, most of the money in the system is spent on environmental activities,
and the investment directed at sustainable projects that earn credits in the
developing world can contribute to the Millennium Development Goals.
However, critics of emissions trading point to problems of complexity, moni-
toring, and enforcement and sometimes dispute the initial allocation meth-
ods and cap.