Carbon Cutting with Cap and Trade
A step in the right direction but far from ideal
In the war on carbon dioxide, the chief culprit in global warming, taxes are out and "cap and trade" is in, as key legislation moves forward in the U.S. Congress.
But will the watered-down proposal work?
It could, most experts believe, if the final plan doesn't have too many loopholes and inspires similar action in China, India and other big carbon emitters that have yet to jump on the global-warming bandwagon.
"Do I think the bills we are talking about would do the trick? I think so," says Paul R. Kleindorfer, professor emeritus at Wharton and professor of sustainable development at INSEAD in France. "The standards are steep," adds Matthew White, a professor of business and public policy at Wharton. "If you believe it's worth spending a lot of money to clean up the environment, then this is a bill you would support."
On May 21, the House Energy and Commerce Committee approved a 930-page bill, the American Climate and Energy Security Act, to cut carbon dioxide emissions to 17% below 2005 levels by 2020. If the bill's current reduction goals were implemented, electricity costs would rise by 5% to 20% around the U.S., with costs going up more in areas heavily dependent on coal-powered generation, White estimates. That could cost the average household $100 to $150 a year. Gasoline prices could rise by 20 cents a gallon, costing the typical household $150 a year, he says.
The bill, generally supported by Democrats and opposed by Republicans, has a long way to go for final approval and could be blended with other environmental measures introduced in 2008. But the various bills appear to settle two controversial issues, giving the nod to the cap-and-trade approach over a carbon tax and providing for most permits to pollute to be issued at no cost rather than be sold at auction.
Many experts feel the measure, dubbed ACES, is the third-best approach to global warming, behind a tax or a cap-and-trade system that required polluters to pay for permits. But many concede the no-auction cap-and-trade alternative is the most politically feasible.