A recent poll by Rasmussen has shown that only 17% of Americans have even the vaguest idea of what Cap-and-Trade Legislation actually is, while a whopping 76% have no clue whatsoever. Whether you are in the 76% or just hope to increase the ranks of the knowledgeable, this primer on the legislation most likely to dig us out of our energy ditch should be helpful.
The government wants companies to emit less harmful gases into the atmosphere, and instead of instituting a straight tax on these emissions, they hope to institute a system of Cap-and-Trade. The government will set the limit on the emissions from all factories across the United States, and if they exceed the limit of greenhouse gases, they will be fined heavily. However, the fines do not start at the first sign of pollution, as the goal is to phase out higher emitting energy facilities.
The Obama Administration proposes giving out credits for pollution, which ideally would only be worth a little less than they are already producing. If a particular factory can reduce its emissions below its credits, it is allowed to trade those credits to companies who are having a harder time. This, in effect, creates a market for pollution. Cap-and-Trade works like a market for any kind of service, except this market deals in pollution. It would create an artificial market for carbon credits, with the limit of credits, or the cap, decreasing over time.
The credits can be given out in two different ways; grandfathering, and auctions. The Obama Administration would prefer the latter, and here’s why. Grandfathering businesses into the Cap-and-Trade system would give the biggest polluters the highest number of carbon credits, as we would rather not put too high a strain on the companies who are producing large quantities of energy. Auctioning off those same credits would create instant revenue, and charge the largest polluters a higher amount to continue producing pollution.
The companies who would be regulated by this system stand in opposition, as it will most certainly cause their services to increase in price, however, that is the goal of the program in the long-run anyhow. Increases in the price of gasoline have coaxed more Americans to drive less and take public transportation more. This is expected to mirror the energy industry, as renewable sources of energy, like wind and solar will end up costing less as there are no credits, making it much more attractive for companies to enter these fields.
Cap-and-Trade has existed for many years in the United States for the pollutant of sulfur dioxide, which has been documented to increase the prevalence of acid rain. The program has really only seen prices increase a small amount, while sulfur dioxide pollution has been cut nearly in half, while power production has increased. That is not to say that the entire fossil fuel energy market in the United States will act similarly, but there is a good precedence for the Cap-and-Trade system.
The legislation is a priority, but the Obama Administration has stated that it hopes to get the system off the ground by 2012 to let businesses and Americans alike get used to the idea of monitoring their emissions with an eye for sustainability. Over time, the cap on allowable carbon credits will be lowered, hopefully spurring innovation in other renewable fields, and weaning the United States off of its addiction to foreign fossil fuels.