Cap and trade systems for carbon dioxide emissions

Carbon Cap and Trade

On June 26, 2009, the Carbon Cap and Trade bill was passed by a narrow margin through the U.S. House of Representatives. Currently, the bill is waiting to be voted on by the U.S. senate and if it becomes law, it would be the first law to mandate greenhouse gas emissions in the United States.

The goal of the Carbon Cap and Trade policy is to decrease greenhouse gas emissions through a widespread and systematic approach. Companies will be subject to specified carbon emission caps, which will limit the amount of greenhouse gas pollution they are permitted to produce (Hufbauer, Charnovitz, & Kim). These emissions restrictions will progressively increase over time until the ultimate emissions goal has been reached (Hufbauer, Charnovitz, & Kim).

Since companies will be varied in their ability to effectively reduce their carbon emissions, a trading component to the policy will allow corporations which exceed their emissions goals to sell "permits" to companies which have not met their goals (Wilhelm; Labatt & White). In this way, the overall greenhouse gas emissions goals can be attained with minimal cost and will provide additional incentives to companies which exceed their emissions targets (Wilhelm; Labatt & White).

The government may choose to provide emission allowances, or carbon credits, to corporations either through an auction or grandfathering approach. The auction approach allows companies to bid on emission allowances and effectively purchase the allowances they require (Wilhelm; Hufbauer, Charnovitz, & Kim). This approach is similar to a carbon tax approach, with the exception that it provides companies with the ability to trade carbon credits amongst each other. The grandfathering system, however, is predicated on the past emission levels of the companies. In this manner, emissions allowances are contingent upon a company's history of emission and there is no auctioning of emission allowances (Hufbauer, Charnovitz, & Kim). The grandfathering approach to emissions targets is utilized in the EU cap and trade system (Hufbauer, Charnovitz, & Kim) .

Issues Regarding Implementation of Cap and Trade Policy

The most prevalent issue pertaining to the introduction of a cap and trade policy, which would place limitations on carbon emissions and potentially slow economic growth, is the veracity of human-driven global warming. Opponents state that global warming is a natural phenomenon and that human beings have not played a role in climate change (Farrar). If the climate change currently occurring on the Earth is the result of natural processes and not an effect of human greenhouse gas emissions, then the expressed purpose of the cap and trade policy is extraneous and unnecessary. Advocates state that global warming is the result of human activities and that action must be taken immediately to reduce emissions and slow global climate change (Farrar). This is an issue which has been the source of considerable contention and debate amongst policy makers and lay people.

Supporting the human-driven climate change argument, in 2007, the Intergovernmental Panel on Climate Change (IPCC), which effectively represents the scientific consensus in climatology, released its fourth assessment on climate change entitled Climate Change 2007. The Climate Change 2007 report involved the contribution of thousands of experts throughout the world and represented the largest undertaking ever in the assessment of global climate change (Wilhelm). The report states that "warming of the climate system was unequivocal" and that the likelihood of humans contributing to the observed global warming trend is greater than ninety percent (Wilhelm; Metz). The report also warns that global warming could lead to detrimental impacts which are sudden or irreversible, including sea level rise and profound increases in species extinction (Wilhelm; Metz).

In this author's opinion, a greater than ninety percent probability that humans are involved in global climate change, with the additional concern that irreversible detrimental consequences may result, is sufficient to warrant immediate action in reducing greenhouse gas emissions. Within the scientific field an absolute certainty that humans have fueled global warming will never be obtained, no matter how much time is provided for study. It is paramount that action, such as the Cap and Trade Policy, is taken immediately to mitigate the production of greenhouse gases and slow global warming. Failure to take these steps will only exacerbate the deleterious effects of global warming as time progresses.

Many opponents to implementation of emissions restrictions, such as that of the Cap and Trade Policy, have also suggested that alternative energy sources are not sufficiently advanced or effective to meet the energy demands currently provided by fossil fuels. Presently, alternative energies are largely fringe suppliers of global energy (Simon). Solar, wind, bio-fuels, and the like, are not adequately advanced to take the place of fossil fuels on any extensive level (Simon).

Proponents of alternative energies, however, suggest this argument is a non-sequitur because it makes the erroneous assumption that alternative energies would need to entirely replace fossil fuels, whereas in reality, alternative energies need only replace a portion of the energy provided by fossil fuel usage in order to help meet the restrictions of a cap and trade policy (Simon; Wilhelm). Additionally, they state it fails to acknowledge that the emissions restrictions are gradual over many decades and that technological advancements will continue to occur during this time period. For example, the efficiency of solar cells was less than 20% two decades ago and is greater than 40% now (Simon).

It is this author's opinion that it seems likely that in the future, the efficiency and cost of developing new solar technologies will improve and increase their viability as an alternative energy source, especially with the increased incentives provided by emission restrictions. This concept should similarly applies to all potential alternative energy sources, including wind energy and bio-fuels, and potential energy sources which may not yet be discovered. It is possible that emissions restrictions may not only reduce our dependence on oil but also provide impetus for the development of new technologies.