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Cap and trade systems

A cap and trade system is a policy instrument developed in order to put a limit on resource use and enhance the redistribution of equal shares of resources through the market system.

Why a cap?

The idea to limit resource use is a fundamental concept in ecological policies because resource extraction poses growing pressure on the Earth’s ecosystems, compromising their functionality. Indeed, in order to sustain the life cycle of goods and services we are now extracting four times more material resources than we did a hundred years ago (Krausmann et al., 2009). Nevertheless, economic growth has not eliminated social inequalitt, hunger and poverty, either in Europe or globally.

Policy efforts to address resource use mainly focus on achieving higher efficiency. Nevertheless, such an approach does not deal with present and oncoming scarcity, and the accompanying social and environmental problems. Economic growth will relentlessly outstrip those gains, meaning a total rise in resource use. Political decisions must deal with the so-called rebound effect when they target resource efficiency in order to clamp down on overall resource depletion.

Therefore, there is a need to set a cap on resource use, including all types of raw materials. This is imperative if we want to effectively reduce consumption and resize the economy to fit inside its ecological space.

To Trade or Not to Trade?

To redistribute access to limited resources a fair policy system is needed.

Until today, market mechanisms such as the Clean Development Mechanism (CDM) have failed to enhance environmental goals and have become a means of speculation on resource scarcity. Therefore other systems have also been developed, both market and non-market based, to tackle the resources that most urgently require capping – fossil fuels. Here are some examples:

  • Non-renewable energy quota scheme for Europe

This overarching regulatory framework was developed by the Resource Cap Coalition (RCC). The RCC is an open platform for organisations advocating for a global resource cap. It was initiated by various international NGOs, including ANPED, CEEweb for Biodiversity, and Ecologistas en Acción in 2010. It lobbies for introducing a resource cap with a view to ensuring social justice and staying within the Earth’s carrying capacity. It also provides a discussion platform that supports the elaboration of strategies and tools required for the achievement of the coalition’s targets.The framework aims to reduce non-renewable energy consumption at EU level and facilitate shifting to renewable energy sources and higher efficiency at the same time through different policy tools, such as energy quotas, the creation of markets for environmental goods and services, and a revolving fund. A scheme without market intervention has also recently been elaborated in order to integrate this proposal (Ecologistas en Acción, 2012).

  • The Rimini protocol

Also called the Oil Depletion Protocol, this is an international agreement that can enable nations of the world to cooperatively reduce their dependence on oil according to a World Oil Depletion Rate, producing a global rationing system.

  • Cap and Share and Cap and Dividend

This cap is enforced by requiring fossil fuel suppliers to have permits to bring fossil fuels into the economy while the benefits of this emission market return to the people.

  • Total Emission Quotas ( TEQs)

This is an electronic system which would guarantee that we meet national emissions reductions targets, ensure fair access to energy for all, and support the active participation and cooperation of citizens and all other energy users in rapidly reducing our reliance on fossil fuels.

  • Calling up caps!

Different typologies of caps already exist in many environmental policies. Some are considered as proper cap-policies, while others set absolute limits to resource use which are included in various environmental policies.

Here are some examples:


Probably the most famous cap, carbon trading aims to reduce the total amount of greenhouse gasses in the atmosphere through a market system of emission permits. In this case the resource “air” is capped in its function of being a sink for greenhouse gasses.


The European Water Framework Directive is an absolute cap on water extraction, defined as an ‘environmental flow’. It calls for restrictions to use according to the carrying capacity of water bodies. This policy can be interpreted as a cap on resource extraction.


The European Fish quota system or Total Allowable Catches (TACs) is a catch limits that is set for most significant commercial fish stocks. TACs are shared between EU countries under a system known as ‘relative stability’ which keeps national quotas stable in relation to each other, even when the total quantity of fish that can be caught varies with the productivity of the fish stocks. This policy can be interpreted as a cap on resource extraction according to its relative availability.


Protected areas and natural parks are much consolidated forms of environmental protection. These locations are defined as absolute caps when they fall into the IUCN Category of ‘strict nature reserve’, which is protected from all but light human use.



Campbell C.J. (2006) The Rimini Protocol an oil depletion protocol: Heading off economic chaos and political conflict during the second half of the age of oil , Energy Policy, 34 (12) 1319-1325.

Dudley, N. (ed.) (2008) Guidelines for Appling Protected Areas Management Categories. IUCN: Gland, Switzerland. p.8-9.

Ecologistas en Acción (2012) Por un límite en el uso de energías no renovables en la UE,

Krausmann, F., Gingrich, S., Eisenmenger, N., Erb, K. H., Haberl, H., & Fischer-Kowalski, M. (2009) Growth in global materials use, GDP and population during the 20th century. Ecological Economics, 68(10), 2696-2705.


Useful websites

Resource Cap Coalition:


This glossary entry is based on a contribution by Annelies Brockmann.

EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos.

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