Below is the best explanation I’ve seen yet of Cap and Trade. I love the not-so-veiled jab at Al Gore. 🙂
There’s one more missing component here. There has to be a way for people with CERs to find people who want to buy CERs — in other words, there has to be a market. This market operates, just like the New York Stock Exchange, the Chicago Board of Trade, or the rug merchant in a bazaar in Istanbul, as a profit-making entity. Every time Wayne in Chicago buys a CER from Wang in Shanghai, the guy facilitating the market — call him “Al” — takes a little off the top in the transaction.
Now we’ve got a picture of the whole transaction:
1. Wayne in Chicago needs to reduce his CO2 emissions by 500 tons, so he contacts Al.
2. Wang in Shanghai has a 500 ton CER.
3. Wayne and Wang agree, through Al, that the 500 ton CER is worth $1000.
4. So Al takes the CER from Wang, paying him $980 (subtracting a $20 commission from the $1,000 trade price) and gives it to Wayne in exchange for $1,020 (because Al is charging Wayne a commission too.)
Now, on paper at least, Wayne is only producing (net) 500 tons of carbon emissions.
read more via Climategate: How To Follow the Money.