The stated purpose of the proposed energy policy known as Cap-and-Trade (C&T) is to reduce Americans' consumption of fossil fuels — coal, oil, and natural gas — and to speed up the nation's transition to alternate forms of energy, such as wind and solar power.
The "cap" part of C&T would consist of a legislated limit to the quantity of carbon dioxide (CO2) that American businesses would be permitted to put into the atmosphere from the burning of fossil fuels. The government would either sell or give a permit assigning a CO2 allowance -- based on past emissions or some other formula -- to each covered utility, oil company, and manufacturing facility. These permits would dictate how much CO2 a company is allowed to produce (i.e., the size of its so-called "carbon footprint," which purportedly contributes to global warming). If a company produces less CO2 than its allotted limit, it earns a Carbon Credit, which then can be traded in a cap-and-trade forum like the Chicago Climate Exchange. Meanwhile, if another company exceeds its allotted CO2 limit, it can purchase that Carbon Credit and thereby "offset" its own oversized "carbon footprint" and reduce its tax liability.
Many proponents of C&T believe that such measures are necessary to save the planet from human-caused climate change, which they attribute to human emissions of greenhouse gases, primarily CO2 from fossil fuels.
Other proponents have a political agenda: If government can regulate energy consumption, then government has immense control over economic activity and people's lives — an irresistible lure to central planners, social engineers, and utopian visionaries.
Still other proponents are driven by economic incentives: companies that generate electricity from non-CO2 sources, such as nuclear and hydropower, would gain a windfall cost advantage against their competition; alternative-energy businesses would stand to receive billions of dollars in additional subsidies; and Al Gore, who met behind closed doors with congressional leaders to plan the C&T strategy early in 2009, has reportedly invested millions of dollars in alternate-energy companies and stands to profit enormously from C&T-generated government subsidies.
Opponents of C&T are more concerned about its massive costs—both economic and political. In January 2008, presidential candidate Barack Obama stated plainly that under his C&T plan, electricity prices would "necessarily skyrocket" as utilities using fossil fuels would pass along the costs of CO2 permits to consumers. Significantly hiking the cost of power would not only raise Americans' utility bills, but would make it more expensive for businesses to power their operations. This would shut down marginal companies and leave the survivors less competitive against foreign businesses — especially since China and India, for example, have announced that they will not curtail their CO2 emissions at all. The ultimate result would inevitably be the relocation of many American jobs to places overseas, where it is cheaper to conduct business.
Even though studies cited by advocates of C&T show that American CO2 reductions would shave only a few hundredths of a degree off future temperatures, they still believe that this would be worth the considerable costs. Thus, when the House of Representatives approved Cap-and-Trade legislation at the end of June 2009, a majority of legislators rejected proposed amendments that would have limited the program's economic damage by suspending C&T if gasoline rose to $5.00 per gallon or unemployment reached 15 percent.
Originally, C&T proposals called for the federal government to sell the CO2 permits and thereby raise hundreds of billions in revenue. By mid-2009, however, congressional leaders were reshaping the program to give permits to various utility companies in exchange for their endorsement of the plan (and perhaps their lobbying dollars). So much Cap-and-Trade money had been slated to be given to Big Business, that a number of Obama allies acknowledged that C&T had the potential to become the largest corporate-welfare program in American history.
On June 26, 2009, the House of Representatives gave President Obama what he wanted, passing a Cap-and-Trade bill that called for the U.S. to cut its emissions of carbon dioxide by 83% over the next 41 years. By 2050, the average American would be allowed the same emissions produced by a citizen in 1867. Environmental groups celebrated, but the bill was extremely unpopular with the American public at large. Thus the bill was never passed by the Senate and did not become law.
Much of this introduction is adapted from "The Nuts and Bolts of Cap and Trade," authored by Mark W. Hendrickson and published by OneNewsNow.com on July 17, 2009.