Cap and trade definition threatens passage of climate change bill

smokestacks emitting pollution backdropped against sun

The cap and trade definition in the climate and energy bill has triggered heated debate about national energy policy and carbon emissions. Flickr photo.

Cap and trade, by definition, is an anchor of the climate and energy bill under current debate in Congress. The cap and trade definition is elusive to most people not directly involved in utilities, petrochemicals or manufacturing. To understand cap and trade, think of it as a system designed to create and regulate a market for carbon, or Co2, the principal greenhouse gas.

Cap and trade definition

The cap and trade definition in the climate and energy bill proposes that the government sets a limit on the amount of carbon that can be released into the atmosphere. U.S. companies are issued permits giving them the right to release a certain amount of carbon. Companies that emit less carbon than their permits allow can sell the unused tons of carbon on the open market. Companies with carbon emissions that exceed their permits must buy them from cleaner companies offering their leftovers for sale.

Cap and trade and national energy policy

Cap and trade is a controversial provision that threatens to derail the climate and energy bill in its present form. While Democrats view cap and trade as a fair way to regulate pollution, Republicans say cap and trade is a tax on business that will kill jobs. With the advent of the oil spill in the Gulf of Mexico and its potential impact on national energy policy, cap and trade has become a political hot potato. So much so that President Obama avoided mentioning the term in his Oval Office speech about national energy policy Tuesday covering the oil spill, energy legislation and the government’s role in regulating greenhouse gases.

Limit on carbon emissions

Carbon emissions targets are nearly identical in both Senate and House versions of the climate and energy bill. PBS reports that regulated industries must reduce their carbon emissions by 17 percent (compared with 2005 levels) by 2020 and 83 percent by 2050. The Senate version has added a “dividend,” or rebate, approach returning some of the revenue generated by trading the pollution permits back to consumers in the form of energy rebates. Those regulated industries include electric utilities, petrochemical refiners, manufacturing and heavy industry. Each has a deadline for entering the carbon market: utilities start at the beginning of 2013, while natural gas providers and heavy industry enter in 2016.

Cap and trade arguments

Cap and trade legislation has generated bitter disagreements between Democrats and Republicans over the climate and energy bill and national energy policy. CBS News reports that cap and trade makes the future of the climate and energy bill uncertain because it will make energy more expensive. Both parties acknowledge that fact but disagree on just how expensive energy will get because of the bill. The U.S. Department of Treasury says the total in new taxes would be between $100 billion to $200 billion a year.

Cap and trade costs

At the upper end of the administration’s estimate, the cost of cap and trade per American household would be an extra $1,761 a year. House Republican Leader John Boehner has estimated  the additional tax bill would be at $366 billion a year, or $3,100 a year per family. Personal income tax revenues bring in  around $1.37 trillion a year. A $200 billion additional tax would be the equivalent of a 15 percent personal tax increase a year.

Cap and trade benefits

Cap and trade boils down to priorities. Some see the issue in black and white: either reduce the rate of global warming, or protect a fragile economy. As with most things in real life, cap and trade isn’t that simple. Ecomil.com reports that climate and energy legislation can reduce carbon dioxide by more than 80 percent of 2005 emission levels by 2050 and significantly reduce the rate of global warming. The system will also create billions of dollars for the government to spend on roads, national parks and personal checks to offset household energy costs.

Playing catch-up with China

What many fear about cap and trade is that if businesses and corporations are financially punished for their pollution emissions, consumers will pay the price. Energy doesn’t respond to supply and demand. Utility companies can drive up prices to cover rising production costs. Meanwhile, countries like China are investing in clean energy industries of the future, while Americans sit around arguing about things like cap and trade. No solution is ever perfect, given that any House or Senate bill is full of special-interest goodies and public giveaways to win votes. But perhaps at the very least, it’s a good start.

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