Will a Cap-and-Trade System Reduce Emissions?

During President Obama's campaign he pledged support for a cap-and-trade system, which places a limit, or 'cap,' on how much a company can emit greenhouse gas emissions. A company must purchase a permit for every ton of carbon dioxide it emits. For some companies it will be cheaper to emit less than its permit allows so it can sell the extra permits to other companies.

After the election, Obama said, "We will start with a federal cap-and-trade system. We'll establish strong annual targets that set us on a course to reduce emissions to their 1990 levels by 2020, and reduce them a further 80 percent by 2050."

Obama's targets are in line with a Union of Concerned Scientist (UCS) analysis which sets the desired limits at 15-20 percent below 2000 levels by 2020, and 80 percent below by 2050.

UCS believes that a "well designed cap-and-trade program would put a price on carbon emissions that reflects the cost of global warming."

The Los Angeles’ Regional Clean Air Incentives Market (RECLAIM), the first emissions trading program, began in 1993 to reduce levels of sulfur dioxide and nitrous oxide. Today the Los Angeles air basin is still the worst in the nation.

The 2006 Dag Hammarskjöld Centre report mentions that the Los Angeles “industry successfully lobbied local government to replace existing and proposed air quality regulations with a trading program.” The SCAQMD allocated pollution allowances to the 370 worst polluters, “including oil refineries, power plants, aerospace companies, asphalt batch plants, chemical plants and cement plants.” Los Angeles still has the worst air basin in the country.

The report also criticized the Acid Rain program, created in 1995 by the U.S. federal government to reduce sulfur dioxide levels, and pointed out that the the Congress “went out of their way to reassure polluters and utility investors that they ‘should expect that allowances will partake of durable economic value and that commercial and other relevant law will apply to allowances and function to protect their value.’”

The EPA “expressed its ‘intention to treat emissions allowances as if they were absolute property rights, except in exigent circumstances.’” According to the report sulphur levels in the U.S. increased by four percent in 2003 “as a result of the program’s banking mechanisms.”

The EU Trading Scheme

Created in 2005, the European Union's (EU) Emission Trading Scheme is the largest "multi-country, multi-sector Greenhouse Gas emission trading scheme world-wide,” according to the EU’s website. The scheme “gives energy-intensive industries an allocation for emissions,” according to SmartPlanet.com. “Efficient companies can trade their excess emissions to companies that emit more than their fair share.”

There are critics of the trading scheme. “Just over a month ago, Europe was united in pushing other developed countries to commit to reductions of 25-40 per cent in emissions by 2020. Yet today it has only committed to a 20 per cent reduction,” said Steven Hale, director of Green Alliance in Britain, last year.

British environmentalist and author George Monbiot is also critical of EU’s trading scheme. “This system, which has been running since the beginning of 2005, began by handing out carbon dioxide emissions permits, free of charge to big European companies. By and large, those who produced the most carbon emissions were given the most permits: the polluter was paid,” he wrote in his book Heat: How to Stop the Planet from Burning. He further pointed out in Heat that the scheme “seized something which should belong to all of us—the right, within the system, to produce a certain amount of carbon dioxide—and given it to the corporation.”

What a well-designed program should look like

Clearly not all cap-and-trade programs are effective. The UCS lists what a "well-designed" program should look like:

• Stringently capping emissions, with firm near-term goals.
• Include as many sectors as possible.
• Include all major heat-trapping gas emissions.
• Auction allowances rather than give them away to polluters.
• Use auction revenues for the public good.
• Exclude loopholes that undermine the integrity of the system.
• Include strict criteria for cost-containment mechanisms such as offsets and borrowing.
• Link with similar programs.