Cap and Trade Basics
Chasing after riches and developing technologies with the intention of increasing comfort levels, with varying degrees of success, often leads to the negative ways in which humans affect the environment. Arising from this have been creative programs designed to minimize or eliminate these effects. The overwhelming evidence that humans are accelerating climate change and altering the oceans chemistry through carbon dioxide emissions has demanded we find ways to reduce this pollutant. When examining how carbon credits, as part of a cap and trade system, can protect our environment it is helpful to review the basics of how they work.
Setting an emissions cap for the region regulated under the program is the basic principle of how reductions are met in order to minimize how humans affect the environment. This is done through a market based system of allotting allowances or credits to regulated institutions. These are basically licenses to emit the pollutant. They are either auctioned off, with a minimum starting price, or sold at a set price to get them onto the market. Institutions who are polluting under their allotted amount can then sell these credits to those that are over-polluting. A finite number of credits are issued, thus ensuring the goal to protect our environment by “capping” the pollution. Institutions must make a choice to either reduce emissions or buy more credits. If they choose to reduce, they must decide exactly how they will do this. For example, should they achieve their goal through efficiency measures, or through utilizing alternative technologies? It becomes economically necessary to consider the environment under a cap and trade system. Further understanding of how carbon credits may work in the U.S. to protect our environment can be obtained by looking at a current success.
Acid Rain Program
The Clean Air Act of 1990 included a sulfur dioxide and nitrogen oxide cap and trade scheme to protect our environment from acid rain. The program set out to reduce sulfur dioxide to or below 9.5 million tons per year by 2010. The U.S. Environmental Protection Agency (EPA) states this goal was met in 2007, when 8.95 million tons entered the atmosphere. Nitrogen Oxide was cut by 3.3 million tons during this same time. The EPA also states that a 2003 Office of Management and Budget study says the program benefits exceeded costs “by more than 40 to 1.” The hope is that carbon credits will be equally or more successful.
Can Carbon Credits Work?
Carbon is a gas that permeates societies much deeper than sulfur dioxide or even nitrogen oxide. Any program must be managed carefully for carbon credits to protect our environment and prevent other negative consequences. Some argue that relatively cheap technologies such as coal scrubbers and “low sulfur” content coal made it easier for a cap and trade to work for acid rain in the U.S. than it will for carbon. There is little doubt that changing how humans affect the environment through carbon is more tenuous and politically charged than other pollutants.
Organizations such as the Institute for Energy Research, which Sourcewatch states “advocates positions on environmental issues which happen to suit the energy industry…”, perpetuates fear of economic doom and reasons why carbon credits will not protect our environment. Some of these fears, are at least somewhat legitimate, however they simplify these issues to fit their agenda. For example their website states a cap and trade will harm the poor, even citing a Congressional Budget Office study that says so. What it fails to mention is the same study states that in a scenario where allowances were sold by the government and revenues were used “…to pay all households an equal lump-sum rebate…” income for households in the “lowest quintile” would increase by an average of 1.8% in 2010." The Waxman/Markey proposed allowance allocation (part of the current proposed carbon cap and trade bill) accounts for this stating, “15% of allowances will be auctioned each year and the proceeds of these allowances will be distributed to low- and moderate-income families to protect them from other energy cost increases.”
The stakes are high for both humans and other living things on Earth. U.S. culture demands we frame even how humans affect the environment in terms of economics, thus we engineer market based systems to mitigate these effects. I argue that through energy efficiency measures, and ample government support for clean energy technologies, coupled with ending subsidies for dirty energy, it’s plausible that carbon credits can work just as well as the acid rain program. Americans are both ready for and have the innovation for an energy revolution. There is no silver bullet for addressing negative human effects on the environment, though carbon credits may be the silver casing holding the buckshot.