With all the discussions in Washington, DC, over the past several weeks regarding energy, some of our members have asked us to explain the “Carbon Cap and Trade” program the government is proposing.

Idealistically, the goal of the cap and trade program is to reduce carbon dioxide and other greenhouse gas emissions economy-wide in a cost-effective manner. Each large scale emitter or company will have a limit on the amount of greenhouse gas it can emit. Power plants, cars and industries are the biggest sources of man-made carbon dioxide emissions. The company must have an “emissions permit” for every ton of carbon dioxide it releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution the company is allowed to emit. Over the years, the limits become stricter, allowing less and less pollution, until the ultimate reduction goal is met.

Under a cap and trade system, the government would assert ownership of the atmosphere over the United States and set a maximum number of permits it would sell to private companies for the right to discharge carbon dioxide into the air. Over time, the government would decrease the number of available permits and increase their price to meet the desired reduction in emission levels. Companies would decide which was cheaper: to buy a permit at the government-set price, or incur the expense to introduce technologies to diminish its carbon dioxide emissions.

Under the government’s proposed plan, companies would pay around $20 per ton of carbon that it wished to emit into the atmosphere. There is some argument as to the amount of money this would raise for the federal government. The National Economic Council estimates it would be between 1.2 and 1.9 trillion dollars over the next seven years.

According to current estimates, the price of gasoline will rise at least 12 cents a gallon and the average electricity bill will go up 7 percent once the cap and trade policy is implemented. There are also concerns beyond the cost of energy. As energy costs rise, the price of every other commodity increases as well. Most of these higher costs of doing business will be passed on to the backs of hardworking Americans. Collectively, these increases equal an $1,100 per year tax hike for a family of four. By, 2050, this amount grows to as much as $3,000 per household.

Can a carbon cap and trade program meet the goal of reducing the amount of CO2 in the atmosphere? No one really knows. What is certain is it will generate additional revenue for the federal government and consumers will be paying more for electricity and the commodities it produces.

Thank You,

Jeff Loven
Email: jeff.loven@frenchbroademc.com


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