Cap and Trade...a Weighty Issue?
Recently there has been much debate concerning a 'cap and trade' program to limit the use of greenhouse gases, in particular carbon dioxide (CO 2). The idea is to use the tenets of capitalism to curb the production of CO 2. As with any issue, both pros and cons exist. The United States actually already has a 'cap and trade' program with respect to sulfur dioxide (SO 2), and it has been ongoing since the early 1990s. The following link describes what a 'cap and trade' program is and details how it has been utilized for SO 2.
The following website is from a self-described progressive organization that briefly delineates a carbon-based 'cap and trade' program and is from a 'pro' standpoint.
The following website discusses the possible shortcomings of such a program from a more conservative viewpoint.
For this discussion, let's discuss the pros and cons of the 'cap and trade' market. Here are some possible questions to consider:
- What are the possible 'pros' and 'cons'?
- Where would the initial and final costs originate?
- Could it be successful?
- What about the developing nations?
- Please feel free to bring up any additional questions, comments, etc.
In theory a Cap and Trade system for CO2 sounds beneficial, but one cannot simply cut and paste the 1990 Clean Air Act model with a new fulcrum. The model was based on Sulfur. If we switch out CO2 for SO2,, too many variables cause the foundation of this act to lose balance. S02, though not a "greenhouse gas" was causing decline in the health of natural water sources. Marine life was declining.This was a direct result of the acid rain formed from S02. As a food source was declining due to S02, CO2 has increased food production. In fact, farmers purchase CO2 to increase their total crop yield and quality (http://www.naturalnews.com/040890_greenhouses_carbon_dioxide_generators_plant_growth.html). While CO2 is being portrayed as the big bad wolf of Global Warming, it is in fact a plant nutrient. Using this new act would potentially disturb plant growth, the human diet, and the agricultural economy. Other factors include cost vs. profit and the freedom of man. As previously stated, one cannot use the same model for two different substances. Carbon is not economically stable to fit such a mold. Prices fluctuate as to proved no sense of security. How will you know if one month you are profitable and can write off that section in your taxes and the next be under the red line? In theory is sounds beneficial, but economically there is too much uncertainty. Lastly is the freedom of man. With benefits being presented in the Clean AIr Act, individuals saw a prize to be sought . That is why they tried so hard to reduce their SO2 emissions. CO2 is ore beneficial for farmers, so their is no need to try and reduce their emissions. I agree with professor William Nordhaus of Yale University, the cost of reducing emissions greatly out weighs the benefits.
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There are pros and cons to the cap-and trade system for reducing greenhouse emissions. The initial costs for this type of regulation would involve changes to present infrastructure. Greenhouse emissions would have to be reduced by a certain percentage by whatever means deemed most efficient by those involved. The benefits to the cap-and-trade system is that it promotes innovation and going above and beyond. Owners and managers of the companies affected are free to reduce greenhouse emissions in whatever way they believe will work best. This drives the creation of new technology and techniques by creating an incentive which is where the “trade” part comes in. Companies that go above and beyond the reduction percentage will be able to sell their “extra reduction” as a commodity to other companies. Therefore, companies that reduce their emissions considerably over the specified percentage could actually make money from these regulations. Developing nations would most likely be hurt the most by these regulations. Developing nations typically rely on fossil fuels the heaviest and do not have the technological or economical capabilities to meet the reduction requirements. They can then be penalized for not meeting the standards that “first world” nations are held to. This can be viewed as unfair but unfortunately arbitrarily deciding which countries should and should not be held to the standard is not a feasible alternative.
ReplyDeletehttp://www.edf.org/approach/markets/acid-rain
http://www.americanprogress.org/issues/green/news/2007/06/01/3173/learning-from-europe-designing-cap-and-trade-programs-that-work/
http://news.heartland.org/newspaper-article/2007/11/01/primer-economics-carbon-taxes-and-cap-and-trade-systems
The cap-and-trade system put in place for SO2 was certainly beneficial in reducing acid rain in the US. This system was also a novel and innovative idea. Given this evidence, one would assume that implementing a cap-and-trade system for all dangerous emissions is the most successful route to pursue. Unfortunately, this may not be the case. A cap-and-trade system would require a large volume of regulation of a database containing emissions from millions of sources. We have neither of these things set in place now. There is also the problem of allowance prices being volatile rather than stable, which is contrary to the model developed by the acid rain program. The biggest problem was stated plainly by William Nordhaus, who "found the costs of reducing carbon emissions exceed the benefits by a substantial amount." Before we spend money (that we may not have) to pursue an initiative to reduce CO2 emissions, we should first have substantial conclusive evidence that doing so is necessary and beneficial.
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