Cap and trade seems incredibly complex, counter-intuitive, unfair, and misguided — if that’s your view, you have it about right, but the funny thing is, it will work — here’s why. The recent passage of the American Clean Energy Security act (ACES) in the House is a big milestone for cap and trade, but it will only pass the Senate if people understand what it is, and why it’s a good thing.
The first thing to know, is that the main part of cap and trade is the cap. The cap says: no more than a certain amount of CO2 can be released in a given year — major polluters are given a limit. Every year the cap gets tightened according to a predictable schedule. We are aiming for a target, and know what we have to do to get there.
The trade part is what makes things seem complicate and strange. So if I am an electricity utility executive, and I have a bunch of coal plants, I may find that I am releasing more CO2 than my limit. What makes trade cool is that if I don’t want to lay off my work force, I can decide to buy credits from another company — I can pay to pollute. Sure, it makes my costs go up, but now I have more incentive to clean up my act.
And no, it doesn’t mean we have more pollution, just more flexibility. My competitor, who had the foresight to start a wind, solar or conservation project a few years ago is the only one I can get the credits from. And if there’s anything that makes me madder than paying to pollute, it’s paying my competitor. In the first few years, all industries combined will release as much as is allowed by the cap. And that’s a lot, but overall, it’s less CO2 than before.
So, still being that electricity utility executive, I could stick my head in the sand. Or I could do what American business has done so well: I could respond to this new market. Suddenly those crackpot wind turbines start looking like a good deal, and it makes more sense for me to encourage households to conserve, or better yet, make their own power with solar panels. I am still in the business of delivering electricity to my customers, but the clean kind makes more sense now than the dirty kind. And next year, the cap is going to get tighter, so there will be fewer credits to buy, and they’ll cost a little more. Time to get with the program.
Now I’ll change hats. I am an executive at a clean energy producer. I get credits, too, but I don’t really need them, so I can sell them to the highest bidder. In 2009, my business was growing, but at a significant disadvantage compared to the established utilities — I had to invest a lot into research, development and new construction — all of this costs money, for the employees, products I need to install, and the labor needed to make it all work. I’m happy to be employing all those people, but it makes my challenge a bit easier when I am able to sell my credits to the existing companies.
And like any new technology, it becomes more efficient as it matures and scales up. New advances in technology make it possible for me to sell my clean energy cheaply, and there’s a lot of incentive for me to do so.
That’s the heart of cap and trade: a way of making CO2 more expensive that encourages businesses to take on the risk and additional cost (read: jobs) of developing and implementing new, clean technologies.
Cap and trade may increase the cost of electricity and other products a little. The current high estimate of the cost of the ACES bill is less than $1 a day for most Americans. But if it were $2 a day, would that really matter?
Now I’ll pretend that I am not sure about this whole thing, and it seems complicated and messy — why couldn’t we just tax the CO2 emitters? We could indeed, and it’s not just a bad idea. But nobody like taxes, and more important, it’s not that predictable, and if the regulators get it wrong, there’s a lot of room for cheating. In the end, the government has a simpler job in issuing and managing the permits than it does collecting taxes.
Now I’ll pretend that I am not so sure this climate change thing is something we caused, or something we can fix. I sure hate to be spending an extra dollar a day when it’s going to change so much. Ok, I’ll admit I have a hard time doing justice to this position, except to say: what if they’re right and the CO2 we’re emitting is the cause, and the fires, floods, droughts, storms and so on that we’re already suffering a little from become worse? And what if Europe, or Japan, or China gets a jump on us — won’t we find ourselves a fading country much like Britain found themselves after they ran out of wood?
The ACES bill is far from perfect. I would like to see it set tighter caps, and aim higher than it has. But this is a big change, and one that’s hard for people to get a handle on — at present, it’s hard to see how it’s the most important thing for us to be doing. But while our economy and health care issues are clear and evident problems, climate change is the far, far more important issue to begin solving.
If you’re not sure that this bill is right, please read all that you can to help understand it. Climate change is a serious problem indeed. Cap and trade is a good solution to help us move to a new system of energy that will not continue to cause climate change. Many industries will have to change, and most companies hate change, so will fight strong and hard against this bill. But it is our voices that will get heard.
Learn the facts, and put your support behind this bill. It’s our best chance to start solving this problem.
And call, fax, write, or meet your senator, local and state reps, skeptical family, friends and neighbors.