Making Sense Of Cap And Trade

The leading proposals in Congress to control global warming propose a “cap-and-trade” system to reduce emissions of greenhouse gas. Here are answers to the frequently asked questions.

What is cap and trade?
It’s a plan to control greenhouse gas emissions, including carbon dioxide, from power plants, vehicles, refineries, and factories.

How would it work?
Emissions would be required to stay below a set limit—the cap. If an industry couldn’t meet those caps through efficiency or renewable energy, it could buy emissions credits from an industry that emits less than the cap—the trade. For example, a coal power plant that exceeded the carbon dioxide cap could trade (buy) emissions credits from a hydroelectric or nuclear power plant that emits no carbon dioxide.

Will it reduce greenhouse gas?
A cap-and-trade system aimed at reducing acid rain was established as part of the federal Clean Air Act of 1990. It required producers of sulfur dioxide, such as coal-fired power plants, to cut emissions by investing in readily available technologies. This system worked. However, sulfur dioxide is vastly different from carbon dioxide: no cost-effective means of cutting carbon emissions currently exist.

What are the pros and cons?
PROS: It gives industry a choice in how it meets global warming guidelines—either reduce emissions through (a) efficiency, renewable fuels, and new technology, or (b) through the buying of emissions credits from industries that produce very little emissions.

CONS: The caps might be impossible to meet, technology to reduce emissions might not be developed in time, and the uncertainties of how Wall Street might implement the cap-and-trade marketplace could end up being very expensive. States that depend heavily on coal, like Kentucky, say the current cap-and-trade limits would penalize people in those states with large and unfair increases in electricity and other costs.