Cap and trade

From Interwest Energy Alliance Wiki

Contents 1 U.S. Carbon Emissions 2 References 3 External Links

A cap and trade system is a market-based scheme designed to help lower emissions of gasses into the atmosphere. In principle, these schemes rely on the power of the market to create financial incentives to lower regulated (or capped) emissions.

Under the 1990 Clean Air Act, a cap and trade system was established for sulfur dioxide (SO₂ emissions. By most account this system has lead to substantive decreases in SO₂ emissions at a fraction of the cost of a traditional mandatory approach. More recently, discussion have focused on cap and trade programs to reduce heat trapping greenhouse gases, especially CO₂. In the United States discussions have focused on carbon emission because CO₂ represents more than 80% of all U.S. greenhouse gas emissions. In terms of end use sectors, much of the discussion of cap and trade programs has been concerned with the electricity production because it accounts for 40% of U.S. carbon dioxide related emissions.

The first steps in a cap and trade system are usually to create a registry of capped gasses and to establish a baseline against which the cap can be set. A regulator or regulating agency then establishes an emissions cap (e.g. on CO₂ or on all greenhouse gasses expressed in C)₂ equivalents) at some targeted level. Under some schemes the cap would reduce over time. Caps often apply classes of polluters (e.g., power plants) or industry sectors. Once the cap is established, then emissions are then divided up into permits. Since these permits allow companies to pollute, they become an asset and take on financial value. Companies that emit less than their permit amount can then sell that additional permit to other companies. While emissions are capped for industries or sectors companies within those sectors are companies have the flexibility to pursue whatever technologies will help them achieve their emissions targets.

It should be noted that disagreement exists about whether pollution permits should be given to historical users of the atmosphere or should be sold. Some advocates of the later position argue that the atmosphere is a public good and that the right to pollute is a use of that public good. Simply giving the permits to historical users of the atmosphere would amount to giving them a substantial financial subsidy. Instead, these permits should be auctioned, along the lines of the way that the FCC auctions airwaves, with historical users being required to buy their permits.

[edit] U.S. Carbon Emissions

According the U.S. Energy Information Administration (EIA) 2005 report on the emissions of greenhouse gases, Carbon dioxide emissions account for about 84% of total U.S. greenhouse gas emissions. Approximately 98% of CO₂ emissions result from the combustion of fossil fuels. [1]

Carbon dioxide emissions for the electric power sector accounted for 40% of total U.S. energy-related carbon dioxide emissions

In the Unites States, the transportation sector account for roughly 33% of U.S. energy related carbon emission. Of the emission for the transportation sector, motor gasoline (excluding diesel, jet fuel or heavy fuel oil) was responsible for 60% of that total.

[edit] References

Energy Information Administration, Emissions of Greenhouse Gases in the United States 2005 (Washington, DC, November 2006), web site http://www.eia.doe.gov/oiaf/1605/ggrpt/carbon.html

[edit] External Links

New York Academy of Sciences ebrief on cap and trade

Union of Concerned Scientist article on cap and trade [2]