Is a carbon cap good for the economy and the environment?

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There is much debate in the world community over how best to cut carbon emissions and curb climate change without further damaging the world’s economy. Scientists have identified the “safe” level of carbon in the atmosphere as 350 parts per million, although we are currently at 385 ppm. Most of the world’s governments agree that we have to enact some type of limit on the amounts of greenhouse gases each country can spew into the atmosphere and find a way to start reducing GHG already present.

One method of reducing GHG pollution that is catching on around the world is emissions trading. That is when a government sets a cap on how much GHG can be released into the atmosphere and issues credits to companies that allow them to pollute a set amount. If a company reduces its pollution and doesn’t use all of its credits, it can sell those credits to less efficient companies. This strategy makes heavy polluters pay more for that privilege and rewards energy efficiency.

This policy can level “the playing field for innovative” startups, notes Fred Krupp, co-author of “Earth: The Sequel.” Krupp gives the example of Verenium, an advanced biofuels company that hired Anheuser-Busch’s former head brewmaster to ferment the waste fiber left over from sugar cane processing and turn it into fuel. “Dozens of companies on the brink of similar clean-energy breakthroughs are only waiting for the green light from Washington,” says Krupp. “That light will turn green when Congress enacts a carbon cap.”

It looks as if clean-energy companies won’t have to wait much longer. Part of President Barack Obama’s “New Energy for America” plan includes a cap and trade policy that would require all pollution credits to be auctioned, and proceeds would go to investments in a clean-energy future and habitat protections, as well as rebates and other transition relief for families. But how would this new measure affect the economy?

The Intergovernmental Panel on Climate Change has projected that the financial effect of compliance with a carbon cap and trade policy (for the next few years) would be between 0.1 and 1.1 percent of the gross domestic products of trading countries. By comparison, the Stern Review, released in 2005 by British economist Nicholas Stern, placed the cost of doing nothing (no cap and trade) at 5 to 20 percent of a nation’s GDP. This difference mainly includes the costs of adaptation, economic losses because of climate problems, and the cost of cleaning up the mess after the fact instead of preparing for it to begin with.

In June, The New York Times reported: “Under a similar emissions-trading system in Europe, carbon currently trades at around 26.45 euros a ton, or about $41. At that price, the value of the carbon credits would be about $220 billion in the first year alone.” The Times quoted Louis Redshaw, a former electricity trader, as saying, “Carbon will be the world’s biggest commodity market, and it could become the world’s biggest market over all.” Perhaps the stock market would be replaced by the carbon market in a greener future.

A recent MIT study shows that a cap and trade policy to cut carbon dioxide would slash oil imports and save the nation hundreds of billions of dollars. Critics of the program note that it would cause a temporary rise in the prices of electricity and home heating until cleaner sources could be brought into the energy mix and replace coal and oil. Many studies have found that the overall cost of capping emissions would actually be very small, less than a penny on the dollar in terms of household consumption.

Proponents of the cap and trade policy point out that income generated by auctioning off the carbon credits would help offset any consumer price increases.

Oddly, it seems that the most vocal supporters of a carbon cap and trade scheme are not tree-huggers like me, but corporate shills. Members of Business for Innovative Climate & Energy Policy — including Levi Strauss & Co., Nike, Starbucks, Sun Microsystems and Timberland — are joining forces to lobby Congress to limit carbon by 80 percent by 2050. U.S. Climate Action Partnership is a coalition of 26 corporations and six nonprofit environmental and conservation organizations also lobbying to establish a cap and trade program.

“Corporate support for climate action is higher than it ever was for the Clean Water Act or Clean Air Act,” points out Krupp, who is president of the Environmental Defense Fund. “By passing strong cap-and-trade legislation, Congress finally can answer the public’s call for a solution to global warming, rising gas prices and the dangerous outflow of oil dollars abroad,” he adds.