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Cap and Trade 101: How a "Cap" Ensures Carbon Reductions

Now that Cap and Trade is a possibility, there is a rising clamor for a carbon tax instead, from conservative thinktanks like the American Enterprise Institute, outlets like The Washington Times and even directly from Exxon itself. Yet when first introduced by Al Gore, in 1993, the carbon tax was anathema to the fossil industry. What makes a carbon tax now less of a threat than Cap and Trade? It’s the Cap.

The key difference between Cap and Trade and a carbon tax is that a carbon tax controls just the cost of pollution – only a cap limits the quantity.

The “Cap” limits emissions by fossil companies

The Cap in Cap and Trade is the only mechanism for ensuring a total limit to carbon emissions. A Cap is set for the fossil industries as a whole. The Cap on emissions at point-of-entry sources (oil pipelines, coal fields and coal-fired power stations) in the current Cap and Trade bill limits total carbon.

The “Trade” funds cost-protection for consumers

The Cap and Trade bill also protects businesses and consumers from rises in fossil energy costs, because it generates funds for subsidies to stop passing-down of costs, to fund fuel efficiency and renewable energy. If businesses and consumers can’t control what kind of energy their power company buys, why should they pay more? Trade would also fund the incentives to help fossil industry itself transition to renewable power and add efficiency measures like combined heating and power.

A carbon tax might not slow the rise of carbon

Under a carbon tax, even though it would be more costly, fossil industries need not change, because they could pass down the costs. A carbon tax would be paid by end users, who are not in a position to invest in renewable power. Even if congress passed subsidies, there would be no upper limit on carbon emissions.

Only a Cap gives fossil companies no choice

The pollution Cap would place a limit on fossil energy. In order to keep generating income, fossil companies would have no choice but to invest in renewable energy and more efficiency. This has been the result in Europe where Cap and Trade has already started the switch to renewable energy, for example the off-shore oil company StatoilHydro investing in off-shore wind.

The new clamor to return to the carbon tax idea is a delaying tactic

Gore’s 1993 BTU tax would have exempted renewables and put a tax on fossil energy. We now hear some of the same oil executives say they prefer a carbon tax. It’s simpler, they now say. Certainly, it delays action if they send Washington back to the drawing board. (Once a carbon tax bill was actually written, the same Feebate type of downstream rebates would likely be built in that the Cap and Trade bill has currently.)

The Cap definitely slows carbon pollution

The Pew Center For Climate Change puts it this way: “But the key difference between a carbon tax and the cap-and-trade approach comes down to the issue of certainty. A tax provides for cost certainty; the cost is fixed because of the tax. Cap and trade, on the other hand, provides for environmental certainty.

Related stories:

Cap and Trade 101: Why “Free” Allowances Are OK

76% of Cap and Trade Bill Allowances Benefit People Not Polluters

Waxman-Markey Cap and Trade Will Pay For Itself, CBO Finds

Image: Flikr user frogdog*

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Written By

writes at CleanTechnica, CSP-Today and Renewable Energy World.  She has also been published at Wind Energy Update, Solar Plaza, Earthtechling PV-Insider , and GreenProphet, Ecoseed, NRDC OnEarth, MatterNetwork, Celsius, EnergyNow, and Scientific American. As a former serial entrepreneur in product design, Susan brings an innovator's perspective on inventing a carbon-constrained civilization: If necessity is the mother of invention, solving climate change is the mother of all necessities! As a lover of history and sci-fi, she enjoys chronicling the strange future we are creating in these interesting times.    Follow Susan on Twitter @dotcommodity.


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