Cap & Trade

Proponents of cap-and-trade hope to harness the invisible hand of "the market" to reduce greenhouse gas emissions (GHG), such as carbon dioxide.

The goal is to "cap" current GHG emissions in the U.S. and then to reduce those emissions substantially by 2050 (70-80% reductions have been called for). Based on the amount of total allowable GHG emissions for the United States for a given year, the federal government would issue an as yet undetermined number of credits for carbon emissions to companies through an auction, by assignment, or by other means. Companies would be free to "trade" emission credits. In other words, companies with low emissions would sell excess credits to companies with high emissions and not enough credits.

The United States' experience with acid rain and the reduction of SO2 emissions, which causes it, is used as an example of a successful cap-and-trade program. Additionally, the experience is seen as an example of how to move away from command-and-control style pollution controls (like the Clean Air Act) by government setting a cap on the amount of allowable emissions and then permitting companies to find different ways to achieve the goal.

The need for cap-and-trade rests on the assumptions that 1) global warming is real and accelerating, 2) that global warming is caused by man-made GHG emissions, and 3) that global warming will have a destructive impact on the earth and humanity, with the potential to eliminate life as we know it.

Opponents of global warming alarmism naturally are opposed to cap-and-trade. More pragmatic opponents of cap-and-trade argue that the costs to the American economy will be excessive, if not destructive, and the impact on carbon emissions/global warming is negligible. Some of these opponents argue for a carbon tax instead of cap-and-trade.

Proponents of cap-and-trade admit that there will be high costs for the economy, particularly for lower and middle class households. They contend though that the government revenues raised by selling cap-and-trade credits to companies would offset the costs felt by most American families. In their plan, the federal government would redistribute cap-and-trade revenues 1) to lower and middle income families to offset rises in energy costs and 2) to "green" companies that would create new jobs developing new renewable and alternative energy sources. Opponents of cap-and-trade might label that a shell game.