Cap and Trade legislation has often been proposed as a way to curb carbon emissions and slow down climate change. However, this system of handing out "pollution credits" and allowing the sale of these credits on the open market has perverse incentives for the current market.
The implementation of cap and trade usually starts out by handing out pollution credits in proportion to current levels of pollution emissions by different companies. That means the more you pollute now, the more you get in the form of pollution credits if cap and trade gets enacted.
Because cap and trade keeps on being proposed, this creates an incentive to increase pollution by emitters. By increasing pollution now, an energy company can increase their hand out from cap and trade if such a policy gets enacted. Then the energy company has more power in the pollution credit markets. This is a deterrent to reducing pollution. Having cap and trade constantly on the table politically is extremely unhelpful towards the environment.
Lesson of the Day: having the constant threat of cap and trade legislation (has been a threat for 20 years now) is an incentive to pollute.
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