Cap & Trade

Cap & Trade


The purpose of cap and trade (C&T) legislation is to reduce Americans’ consumption of fossil fuels—coal, oil, and natural gas—and to speed up the transition to alternate forms of energy, such as wind and solar power. The “cap” part would be a legislated limit to the quantity of carbon dioxide that Americans would be permitted to put into the atmosphere from the burning of fossil fuels. The government would then issue permits that it would sell or give … to businesses who could then either emit CO2 up to the amount stipulated in their permit, or, if they can curb CO2 emissions below that amount, could sell or “trade” the permit to the highest bidder in the after-market.

The stated overarching goal of proposed C&T is to save the planet from human-caused climate change, which C&T proponents attribute to human emissions of greenhouse gases, primarily CO2 from fossil fuels. These proponents truly believe (despite considerable scientific disagreement) that such measures are necessary to save the earth. Others have a political agenda: If government can regulate energy consumption, then government has great control over economic activity and people’s lives—an irresistible lure to central planners, social engineers, utopian visionaries, and megalomaniacs.

Still others have economic incentives: companies that generate electricity from non-CO2 sources, such as nuclear and hydropower, would gain a windfall cost advantage against their competition; alternative energy businesses would stand to receive billions of dollars in additional subsidies; and Al Gore … has reportedly invested millions of dollars in alternate energy companies and stands to profit enormously from C&T-generated government subsidies.

Opponents of C&T are more concerned about its massive costs—both economic and political. In January 2008, candidate Barack Obama stated plainly that under his C&T plan, electricity prices would “necessarily skyrocket” as utilities using fossil fuels would pass along the costs of CO2 permits to consumers. Significantly raising the cost of power would not only hammer Americans’ utility bills, but would make it more expensive for businesses to power their operations. This would shut down marginal businesses and leave the survivors less competitive against foreign businesses—especially since China and India, for example, have announced they won’t curtail CO2 emissions at all….

Even though studies cited by advocates of C&T show that American CO2 reductions would shave only a few hundredths of a degree off future temperatures, they still believe that this is worth the considerable costs.

The piece above is excerpted from “The Nuts and Bolts of Cap and Trade” (by Dr. Mark W. Hendrickson, July 17, 2009).

Additional Resources:

The Economics of Global Warming Policy
By Ben Lieberman
June 16, 2010

The Nuts and Bolts of Cap and Trade
Dr. Mark W. Hendrickson
July 17, 2009

The Economic Impact of Cap and Trade
By Dr. David Kreutzer
April 22, 2009

The Decline and Fall of Cap-and-Trade
By Patrick Michaels
October 2010

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