Cap and trade is an anchor of the climate and energy bill under current debate in Congress. The cap and trade definition is elusive to most individuals not directly involved in utilities, petrochemicals or the manufacturing business. To understand cap and trade, think of it as a system intended to create and regulate a market for carbon, or Co2, the principal greenhouse gas.
Cap and trade definition
The cap and trade definition in the climate and energy bill proposes the government sets a limit on the amount of carbon that could be released into the atmosphere by all of the companies. US companies are given permits allowing them to release certain amounts of carbon. If companies use less carbon, they can sell unused carbon on the open market. Companies with carbon emissions that exceed their permits must buy them from cleaner companies offering their leftovers for sale.
Cap and trade and national energy policy
Cap and trade appears to be a very controversial provision that threatens to derail the climate and energy bill in its present form. While Democrats think it is a fair way to regulate pollution, Republicans say cap and trade is a tax on business that will kill jobs. With the advent of the oil spill in the Gulf of Mexico and its impact it could have on national energy policy, cap and trade has become a political hot potato. So much so that President Obama avoided even the slightest mention of the term in his Oval Office speech about national energy policy Tuesday covering the oil spill, energy legislation and also the government’s role in regulating greenhouse gases.
New limits on carbon emissions
In the Senate and House version of the bill, carbon emissions targets are identical. PBS reports that regulated industries must reduce their carbon emissions by 17 percent (when it is being compared with 2005 levels) by 2020 and 83 percent by 2050. The Senate version has added a “dividend,” which can also be called a rebate, approach returning some of the revenue generated by trading the pollution permits back to consumers in the form of energy rebates. Those industries include electric utilities, petrochemical refiners, manufacturing and heavy industry. Each has a very strict deadline for entering the carbon market: utilities start at the beginning of 2013, when natural gas providers and heavy industry enter in 2016.
Cap and trade arguments
Cap and trade legislation has generated bitter disagreements between Democrats and Republicans over the climate and energy bill. CBS News reports that cap and trade makes the future of the climate and energy bill uncertain because it will make energy more costly. The parties disagree on how expense this could be. The U.S. Department of Treasury says the total in new taxes would be around $200 billion a year.
Cap and trade and its cost
At the upper end of the administration’s estimate, the cost of cap and trade per American household would be an additional $1,761 a year. House Republican Leader John Boehner thinks that the additional tax bill would be at $366 billion a year, or $3,100 a year per family. Personal income tax will bring in around $1.37 trillion a year. A $200 billion additional tax would be the about the same as a 15 percent personal tax increase a year.
Cap and trade with benefits
Priorities is what cap and trade boils down to. Some see the issue only in black and white: either reduce the rate of global warming, or protect a fragile economy. Cap and trade won’t be that simple as numerous things aren’t. Ecomil.com reports that climate and energy legislation can reduce carbon dioxide by a lot more than 80 percent of 2005 emission levels by 2050 and substantially reduce the rate of global warming. The system plans to create billions of dollars for the government to spend on roads, national parks and personal checks to offset household energy costs.
Trying to catch up with China
What many fear about cap and trade is that if companies and corporations are financially punished for their pollution emissions, consumers will pay the price. Energy doesn’t respond to supply and demand. Utility companies can drive up prices to cover rising production costs. Meanwhile, countries like China are getting clean energy industries of the future, while Americans sit around arguing about things like cap and trade. No solution is ever perfect, given that any House or Senate bill is full of public giveaways to win votes. But perhaps at the very least, it’s a good start.
Citations
PBS
pbs.org/frontlineworld/stories/carbonwatch/2010/06/the-american-power-act-cap-and-trade-20.html
CBS News
cbsnews.com/8301-504383_162-5314040-504383.html
ecomil.com
ecomii.com/ecopedia/cap-and-trade
