Carbon Cap and Trade

In my very first post here I mentioned cap and trade. The idea is we define how much carbon we agree to release into the air (the cap). Then we sell a share (credit) of that to businesses that produce carbon. They can then sell those "credits" creating a trading market. Like stock trades, you have carbon credit trades.

President Obama has already built revenue into his budget from the initial sale of these credits. (646 billion). Every carbon producer will have to pay for the amount of carbon they produce by buying sufficient credits to offset the carbon produced. If you produce less emissions later you can sell your extra credits. If your business grows and you need more credits to cover your additional emissions, you must buy them in the market at market price.

Europe started theirs in 2005 and they gave all the credits away initially. Right now prices for credits are depressed due to the recession. (There are more credits than carbon being produced.)

Bottom Line #1 - Cap and trade is already integral to a budget long before its been vetted by congress. It is a market created from the ground up to price carbon emissions and limit or reduce the amount produced. Europe would like us to join their system so there will eventually be a global cap and trade market.

Taxes are the alternative. Simply tax every ton of carbon produced. Some would argue it's all a tax but "cap and trade" is just another way of saying it. Either way, industry will be faced with a cost to putting carbon in our air. Boulder Colorado already has a carbon tax and other states have implemented programs as well.

Bottom Line #2 - The opportunity to argue whether carbon is a real problem or not has mostly passed. It's now down to how to build a market mechanism to reduce the amount, rather than just hand it to the EPA, call it a pollutant, and regulate it through fines etc.