Recently, the state of Washington embarked on an ambitious new plan to combat climate change. Taking a page from economics textbooks, the state instituted a statewide "cap and trade" system for carbon emissions. The state establishes a cap on the total amount of carbon pollution it is willing to allow each year, and then gives away or auctions off carbon emission permits that add up to that total. Companies can then trade those permits on the open market. Economists love cap and trade plans because they establish a limit on carbon emissions while letting the market find the most efficient way for decarbonization to occur. But cap and trade has had a hard time catching on, especially in the U.S. The stakes are high for Washington's new plan. If it succeeds, it could convince other states to implement their own versions, but if it fails, it might serve as a cautionary tale. On today's show, we take a look at how Washington's grand experiment with cap and trade is faring. This episode was hosted by Keith Romer and Kenny Malone. It was produced by Emma Peaslee and edited by Emily Siner. It was fact checked by Sierra Juarez and engineered by Valentina Rodriguez Sanchez. Alex Goldmark is Planet Money's executive producer. Help support Planet Money and hear our bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney. Learn more about sponsor message choices: podcastchoices.com/adchoices NPR Privacy Policy
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Kenny, when economists consider the problem of climate change, you know what kind of problem they see?
Economic problem would be my guess.
Keith?
Yes, yes, 1000% an economic problem.
Because when they look at climate change wearing their economics tinted glasses, what they see is a classic market failure.
So to fix climate change, all you have to do is fix the market.
Yeah.
And, you know, look, the idea is that for the most part, these big polluting companies and, you know, regular people driving their cars, they're doing damage to the climate that they do not pay for directly.
But perhaps if they did pay for all that damage, they would start making some different choices, methinks.
Yeah, the price of emitting carbon is too low.
So one thing you could do is raise the price by slapping on a carbon tax.
This solution is kind of economist's favorite, but carbon taxes, tough sell politically.
New taxes, not always that popular, which.