Barack Obama is aggressively pursuing a cap and trade plan. He asked Congress to send him legislation and he’s included revenue from the plan in his budget. Kevin Drum at Mother Jones breaks into the budget and tries to figure out the adminstration’s assumptions.
Mother Jones: Hmmm. That sounds like roughly $100 billion per year. Is that reasonable? The United States produces about 7 billion tons of CO2 equivalent a year right now, which means that Obama expects his cap-and-trade plan to generate a price of about $14 per ton in its first year — assuming it covers every single molecule of carbon emitted in the U.S. If only half of all emissions are covered at first, it means a price closer to $28 per ton.
For comparison, the European ETS cap-and-trade plan currently prices CO2 at about 10 euros per ton. That’s roughly $13. And that price has dropped considerably over the past few months thanks to the recession. By 2012 it’s likely to be back up in the range of $20 or more.
But how logical are these projections? The carbon market in Europe is still cratering and it’s probably going to hit $10 a ton before long. Depending on how a U.S. program is implemented we could see similar prices. The economy might perk up, but there’s a better chance that it won’t. As Drum says, the prices are probably a little high.
However, if we are a company that’s going to be affected we might want to start looking into how we can pick up credits ahead of the legislation so we can save money. The trick, obviously, is how the legislation comes together. If the government gives away the credits intially, then, stocking up on credits is silly. But if they auction them off at $15 a credit. Then now is the time to buy, assuming they’re tied to a global carbon market.