Through most of our history, companies that polluted the air and water paid no price for doing so, but in the 20th century economists came up with a way to make them financially responsible. Under a cap and trade system, governments set a limit on how much polluters can emit and require those companies to buy allowances. If they can cut their emissions, they can buy fewer allowances and save money. If they do a good job of controlling pollution and don’t use all their allowances, they can sell them to other firms – boosting profits.
"This kind of cap and trade regulation is now used all across the world," says Bill Shobe, a professor of economics at the University of Virginia. "It’s used in China, in the European Union, in New Zealand, and California is using a similar program to reduce its CO2 emissions."
Shobe says joining the Regional Greenhouse Gas Initiative or RGGI was a smart move and notes Republican President George H.W. Bush was the first to support such a market-based solution when the northeastern United States was faced with environmental destruction.
"The acidification of rainwater from the burning of coal back in the 70’s was a really serious problem, killing trees and fish and causing lots and lots of damage," he recalls. "Those emissions were controlled with a cap and trade program as well."
Virginia’s governor-elect, Glenn Youngkin, complains that utilities will pass along the costs of allowances to consumers, so membership in the Regional Greenhouse Gas Initiative amounts to a tax on them, but Shobe says all of us benefit from the revenue produced when allowances are sold – about $200 million a year.
"Half of the revenue is being used for energy efficiency retrofits in low income housing. Half of it is going for flood resilience planning in Virginia."
And if Youngkin is really concerned about the affordability of energy, he suggests some of that money could also be rebated directly to consumers.