Cap and Trade? Already Done It!

by Handsome Matt

Cap and Trade is the idea that the market, with certain regulations, can figure out the best way to lower emissions of greenhouse gases through the economic forces already at play.

This has appeal to many businesses for many reasons. To begin with, it lets companies who are already environmentally friendly, make extra money through the selling of their extra CO2 credits that they don’t need. And it lets businesses who need time to lower their emissions buy extra credits as they update and modernize their systems.

At least that’s how it should work in theory.

Both sides make excellent arguments, and need to be considered, addressed, and in some instances, instituted.

The One Hand

Warren Buffet, in an interview on CNBC’s “Squawkbox” makes the first argument against a cap and trade system.

He states “[a]nything you put into [the budget] that effectively taxes carbon emissions, somebody’s going to bear the brunt of it. In the case of a regulated utility, the customers are going to bear the brunt of it.” (Warren Buffet, onSquakbox).

This is a concern, because these types of fees, taxes, or requirements shouldn’t be passed onto the consumer. It isn’t the consumers responsibility to pay a companies fines because it is a polluter. It should come solely fromthe companies profit margins with no additional cost to the consumer. If the taxes could be stipulated in such a way as to stop them at a certain level, then Warren Buffets concern, and the concern of many others would be addressed.

More concerns are brought up in the video “The Story of Cap & Trade.”

A few points that can be pulled out need to be addressed. She’s right, if permits are given out free, then what’s the point of the system? Also, if there are loopholes, then they need to be closed.

There needs to be strong government oversight, by a non-partisan, non-elected official. This should remove some of the power of lobbyists and special interest groups, making the oversight committee a bit more impervious to outside influence.

The loopholes need to be closed, personally it’s reprehensible that we include loopholes in a law. A law should either be followed or not followed, applicable to all, or else why pass it? Destroying the natural ecology should never be considered “clean.”

On the Other Hand

The Cap and Trade system is based on the stock exchange. The market rewards a few things quite well: innovation, low costs, quality. Look at the innovative products of the last century: Google, the cellphone, television, software, the PC, automobiles, a trend is developing.

When products are innovative and solves a problem, the company that made it, makes money. Money that can be reinvested into more innovative products creating more solutions, and on and on.

Secondly and thirdly, the market forces prices of items to go down. A gallon of gas did only cost $0.33 a gallon in the 50s, but that would be equivalent to $6.00 now. It also through production, causes the price of  items to lower, the more that is made then the less it needs to be sold for. When a product is of high quality, it becomes worth more on the market as well; Think Bang &Olofson, Mercedes, BMW, Porsche, Ferrari.

In a cap and trade system, these forces would come to bear on pollution. Companies that were innovative, low cost, or high quality, would make money. Either through innovation of clean technologies, making clean technologies affordable, or making them of such high quality to be worth a higher price.

Secondly, the US has experimented with Cap & Trade systems before, and it’s worked for both SO2 and NOx emissions. (the two maps show the ppm of these gases actually lowering over time).

Lastly, it doesn’t impose immediately harsh requirements. If we’ve learned anything from the current recession, its that manufacturers aren’t quick to change. With a step down approach, companies will be able to meet the demands on an easier timetable, and it should help to keep costs down.

And lastly, Energy trading and subprime mortgages aren’t bad ideas in and of themselves. Because they were so new, our laws hadn’t changed quickly enough to stop the corruption and crime that could have taken place in those systems. But because everyday people are active in this debate on Cap and Trade, I don’t feel that cap and trade will result in a bubble the same way that energy trading and subprime mortgages did.

Conservance’ Stance

I think that with smart government oversight, enforcement of requirements, and no loopholes; Cap and Trade will work. It will also allow the creation of new industries and let certain current companies/fields become more profitable. Land management companies, summer camps, the US Forestry and Parks and Recreation departments, logging companies,  “green” industries, and industries that have already become environmentally responsible can suddenly make money selling carbon offset credits.

Certain government agencies and non-profits would have no issue funding more and more preservation or conservation based programs. Local farmers who practice responsible land-management would be able to make money as well. This could catapult our economy INTO a clean, energy independent economy.

If a cash incentive could be placed into the system to reward companies proven ecological efforts then it’s even better. Suppose there were a million dollar bonus, or even a sizable tax break, given to a company if they directly helped an organism get off the endangered species list. Extinction would stop immediately.

The caveat though, is this:

It must be executed properly

Under a properly run cap and trade system, it would be more lucrative to preserve wild spaces, integrate our building projects to be as environmentally friendly as possible, “greenovate” our homes and use environmentally friendly alternatives.