Over the past few months, the issue of climate change has crept its way back into the news cycle and rightfully so. From the IPCC’s latest climate change report to the recent promises from China’s leaders, actions to combat climate change have finally received some of the attention many of us think it deserves. But what about the U.S.? The EPA has proposed several new regulations and President Obama recently pledged a 25 percent reduction in the U.S.’s CO₂ emissions by 2025. These proposals have received heckles from leaders in both Congress and the business world. Most arguments against tighter environmental regulations center around the impact on local economies. It seems successful emission regulations can fall on short-term memories.

What some critics overlook is that the U.S. and EPA have already implemented effective emissions regulations, without the economic backlash many predicted—more about that later. If the U.S. is to create a nationwide program in reducing CO₂ emissions, we should draw from our past experience in crafting effective emission reduction models. One such model is cap and trade.

Here’s the idea behind cap and trade: by creating a market for a particular pollutant, such as CO₂, industries that emit that pollutant must purchase an equivalent number of pollutant “credits” based on their yearly emissions of that pollutant. For example, one credit would allow one ton of CO₂ emissions for that year. The number of credits allowed for purchase is determined by the “cap” that a public authority sets, which is the allowed emissions for that year. If a company fails to purchase an equivalent amount of credits based on their emissions, the company must pay a fine to the public authority in charge of distributing those credits. As the cap and trade market goes on, the allowed number of credits within a market slowly decrease, while the price of credits and incentives to reduce emissions increase.

You’ve probably heard of cap and trade before. Most likely as the broken emissions trading scheme the European Union set up in 2005, though “broken” might be an overstatement. Phase I of the program saw prices of CO₂ credits drop to zero, eliminating any incentive to reduce emissions. This was in large part due to the flawed initial pricing of the credits, along with inflated estimates each participant emitted. And the worldwide economic downturn in 2008 did not help matters either. However, the EU has implemented several measures to begin Phase II of their cap and trade system. One highlight was introducing a banking program to buy up emissions credits to help stabilize prices, much like how the U.S. Federal Reserve buys and sells bonds to control the US money supply.

Now, to the point mentioned earlier about the U.S.’s past cap and trade programs. In the ’80s and ’90s, the U.S. and Canada recognized the need for a reduction in SO₂ and NO_x emissions from power plants as acid rain and low-lying ozone was becoming a significant problem in the eastern U.S. Proposed by the EPA and signed into law in 1990 by George H. W. Bush, the Acid Rain Program has arguably become the most successful cap and trade system to date. In just 15 years, the program was responsible for a 40 percent reduction in SO₂ emissions compared to 1980 emissions. On top of that, the EPA further strengthened emission restrictions on NO_x emissions with the NO_x Budget Trading Program. Running from 2003 to 2008, the program was a large success in driving down NO_x emissions. In the 20 participating states, 2008 NO_x emissions from power plants were only a quarter of 1990 emissions.

The advantage of cap and trade over other emissions regulations, such as a flat emissions tax, is that individual control requirements are not imposed on the sources of emissions, giving companies a wide range of choices. For example, an emitter may either reduce their own emissions or invest in other clean technologies or industries. Also, if companies are able to reduce the emissions far below their yearly allotment, they may sell those credits back to other companies, potentially at a profit from their initial investment.

Most critics against tighter emission regulations fall back to the impacts on economies and electricity rates passed on to consumers. This is a valid argument, as regulations would require most companies to revise strategies and invest heavily in newer, less emissive technologies. However, both the programs mentioned earlier not only reduced emissions, but did not measurably contribute to any increase in electricity rates. From 1990 to 2005, electricity rates within participating states largely stagnated with the introductions of the Acid Rain and NO_x Budget Trading Programs.

The U.S. and EPA have extensive experience in designing and implementing wide-scale cap and trade programs. We’ve seen this through the successes of the Acid Rain and NO_x Budget Trading programs. Any emission regulation must account for the impacts on industry and cap and trade does just that. By tying our emissions to purchased credits, we can create market driven incentives and a consciousness about the goods and services that contribute most to greenhouse gas emissions. If the U.S. is to introduce a nationwide CO₂ emissions regulation, cap and trade is the most effective wide scale regulatory policy in balancing our emissions and economy.