Did you come late to the party on cap and trade? Now that it’s one step closer to being law, here’s a primer what it is and how it works.
AP-By DINA CAPPIELLO and ERIC CARVIN
Cap-and-trade? Offsets? Pollution credits? The climate bill under consideration in the U.S. House of Representatives tackles global warming with new limits on pollution and a market-based approach to encourage more environmentally friendly business practices. But what exactly do the proposed rules mean, and how would they work?
Some questions and answers about the bill, a top legislative priority for President Barack Obama:
Q: What’s the purpose of this legislation?
A: To reduce the gases linked to global warming and to force sources for power to shift away from fossil fuels, which when burned, release heat-trapping gases, and toward cleaner sources of energy such as wind, solar and geothermal.
Q: How does the bill accomplish this?
A: By placing the first national limits on emissions of heat-trapping gases from major sources like power plants, refineries and factories. This limit effectively puts a price on the pollution, raising the cost for companies to continue to use fuels and electricity sources that contribute to global warming. This gives them an incentive to seek cleaner alternatives.
Q: Is this the “cap-and-trade” idea that has been in the news?
A: Yes. The first step in a cap-and-trade program sets a limit on the amount of gases that can be released into the atmosphere. That is the cap. Companies with facilities that are covered by the cap will then receive permits for their share of the pollution, an annual pollution allowance. This bill initially would give the bulk of the permits away for free to help ease costs, but they still would have value because there would be a limited supply. Companies that do not get a big enough allowance to cover their pollution would either have to find ways to reduce it, which can be expensive, or buy additional permits from companies that have reduced pollution enough to have allowances left over. That is the trade. Companies typically would pick the cheaper option: reducing pollution or buying permits. They also have a third choice: They can invest in pollution reductions made elsewhere, such as at farms that capture methane or plant trees. These are known as offsets.
Q: So the idea is to try to reduce the overall level of pollution, regardless of whether, say, a particular factory reduces emissions?
A: That is true in the beginning. But as the cap gets lower and lower, reaching an 83 per cent reduction by 2050, eventually all polluters will have to reduce. It is merely a question of when. For instance, it will be very tough for coal plants to reduce emissions at the outset of the program because the technology to capture and store carbon dioxide is not yet commercially available. It probably is 10 to 20 years away. So they will be buying offsets and buying allowances from other entities that will have an easier time.
Q: Do most environmentalists support this approach?
A: Most do, at least broadly. Cap-and-trade has had success. Since 1990, the United States has had a cap-and-trade program for sulfur dioxide, the main culprit in acid rain. Democrats have had to make a lot of concessions to win votes for the current bill from lawmakers from coal, oil and farm states. Some liberal environmentalists think these concessions weaken the bill. For instance, the bill’s sponsors have had to lower the cap — it originally called for a 20 per cent cut by 2020 — to 17 per cent. Research suggests that much deeper cuts will be needed globally to avert the most serious consequences of global warming.
Q: Who opposes this approach, and why?
A: Republicans, some farm groups, some environmentalists, the oil industry, which feels it has received too few free permits, and some moderate Democrats. They all worry about the cost and the loss of jobs if industries move to countries that do not have controls on greenhouse gases. The bill has provisions to prevent this, but there are questions whether they will work. Republicans call the bill a national energy tax on every American family. This is because, as industries spend money to reduce pollution or buy credits, they will pass on that cost to consumers, the people who turn on the lights or pump gas in their cars. Recent analyses by the nonpartisan Congressional Budget Office show that the new rules eventually will cost the average household an extra $175 a year.
Q: Under the bill, what will happen to companies that do not follow the rules?
A: If they exceed their limit, they will have to pay a fine equal to twice the cap-and-trade price for each ton of pollution over the limit.
Q: Other than costs potentially being passed along to consumers, will this affect most Americans’ day-to-day lives?
A: It fundamentally will change how we use, produce and consume energy, ending the country’s love affair with big gas-guzzling cars and its insatiable appetite for cheap electricity. This bill will put smaller, more efficient cars on the road, swap smokestacks for windmills and solar panels, and transform the appliances you can buy for your home.
Q: How quickly will we notice these changes?
A: Some will occur more quickly than others. For instance, measures to boost energy efficiency in buildings and appliances are the low-hanging fruit that does not require major infrastructure changes or new technologies. Other changes are decades off and probably will come when the cap gets more stringent and permits get more expensive. For instance, the country can build more wind and more solar panels, but currently it lacks the transmission lines to move the energy they generate to population centres. As for cars: While more efficient models are a near-term reality, it will take a while to change out the fleet. Some people will continue driving 10-year-old gas guzzlers.
Q: What are the chances this bill will become law?
A: Both the Obama administration and Democrats want this bill passed by the end of the year, when negotiations for a new international agreement to reduce greenhouse gases get under way in Copenhagen, Denmark. Even as Democrats hold the majority in Congress, it will not be easy to get this enacted. Many moderate Democrats from rural states and conservative districts are worried about the costs and complexity of the legislation when the economy is already weak. Very few Republicans, if any, are expected to support the bill. Approval of a climate bill in the Senate has been viewed as a long shot. Parts of the bill may need to be changed to secure approval in the Senate.
Q: Why is it so important to tackle global warming anyway?
A: Left untended, scientists say, global warming will cause sea levels to rise, increase storms and worsen air pollution. For these reasons, the Environmental Protection Agency recently concluded that six greenhouse gases pose dangers to human health and welfare. And politically, without U.S. action, developing countries like China probably will not agree to mandatory pollution limits.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.