Cap-and-Trade Provides the Flexibility to Address Competitiveness

Domestic competitiveness and emissions "leakage" -- in which a company simply shifts emissions overseas rather than reducing them -- are a significant concern when designing any emissions reduction program. Poorly designed or inherently inflexible policies run the risk of driving production offshore to jurisdictions that do not have an absolute carbon cap -- costing American jobs while producing no net greenhouse gas abatement. A cap-and-trade system can use a carefully designed allocation process to mitigate emissions and investment leakage on sectors that face international competition. Granting an allocation to trade-exposed industries unable to pass through their allowance costs minimizes distributive impacts while still allowing these industries to operate under a carbon constraint.