Cap and Trade

What is it?

Cap and Trade is a means of reducing emissions deemed dangerous by a governing body, such as our federal government. Industries are told how much of a commodity — such as carbon dioxide — they’re allowed to produce or emit over a period of time. That’s the cap. Caps generally vary with the industry or producer.

An emitter who will exceed their cap is allowed to buy excess emission allowances from other emitters who will stay under their cap. That’s the trade.

The idea is that “smart” emitters will be encouraged to make changes that allow them to emit less than their cap thereby allowing them to profit by selling their excess to other emitters.

One problem with the idea is that the government picks the caps and can choose winners and losers based on any criteria, including, believe it or not, politics.

Another problem is that you have to believe the controlled emissions are dangerous in the first place or, for some reason, worth limiting and charging penalties for.

A third problem is that emitters that exceed their caps have to raise their prices in order to pay for changes to the way they operate or for purchasing allowances from others. In some cases, an emitter may not be able to do either in a way that allows its customers to remain interested in its products. In that case, it’s out of business and its employees are out of work.

Speaking about his Cap and Trade desires in 2008, then-candidate Obama said that, “if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted. … So if somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them.”

President Obama — and plenty of other people — believe carbon dioxide is the cause of global warming and so carbon dioxide emissions must be reduced in order to save the planet. Plenty of other people are convinced that’s a mistaken belief. The believers are willing to bankrupt the coal industry thereby burying one of our country’s biggest natural resources, putting thousands out of work, and increasing energy prices for everyone. And even at that, the likely reduction of carbon dioxide emissions is miniscule.

Finally, Cap and Trade is explained as a market-based approach to solving a problem. But the market is rigged however the government wants to rig it, not by a truly free market. And as prices rise (for every customer of every affected producer) and the government skims proceeds for its other programs, it’s not called a tax. Cute. Like the scene of a bad accident, there’s nothing more to see here, folks, move along.

Here are some articles we’ve posted on Cap and Trade.