There’s a lot happening on the energy front in Washington. A major issue that came up in the dying days of the presidential campaign, but one that saw little media coverage, is the issue of climate change and the desire to regulate industries that generate greenhouse gases. There are a variety of approaches to this goal, and the one the Obama administration is currently aggressively pushing is known as ‘Cap and Trade.”
In a nutshell, with Cap and Trade emissions are capped, and companies are allowed an amount of emission credits that cannot exceed the capped threshold. Should a company exceed that cap, it has the option of buying credits from other companies that come in under the required threshold. This would encourage companies and entire energy sectors and industries to move away from relatively plentiful and inexpensive fossil fuels (even including the price spikes seen recently) to green solutions that might not be economically feasible in the marketplace without such incentives. Similarly, ‘good” or otherwise approved companies and industries, such as wind power, etc. receive a reward for their lower emissions and a subsidy if they are otherwise not market efficient.
The credits themselves could be auctioned to companies by the federal government for a revenue generating fee or be given away free to companies and industries. It should come as no surprise that the Obama administration leans towards auctioning away the credits results in what amounts to a back door tax on business that will invariably be passed along to customers. The Congressional Budget Office project that an economy-wide cap-and-trade program would generate at least $50 billion per year, but could reach up to $300 billion.
It has been argued that the pass along will encourage customers to make the “right” choices in their personal lives as far as the source of energy they use to heat their homes, the type of vehicles they drive, the type of homes they live in and the type of electric appliances they use.
With an auction scheme, it is possible to use some of the revenue generated to lessen the impact on both industries and the end-user with any remaining revenue set aside to achieve other environmental goals. However, as is the case with the money generated from many state lotteries ‘ ostensibly set aside for school funding ‘ the reality of how the funds are used can be far different than the stated goals. It is also counterintuitive to overly reward both the “unfavorable” companies/industries and their customers if the end goal is truly a change in behavior.
While Cap and Trade has serious potential ramifications for any company or industry involved with fossil fuels, there does appear to be notable, and to some extent bipartisan, political resistance to pursuing that policy at this time. Adding an additional layer of taxation and disruption to an already stagnant and hurting economy is a hard sell now to all but most politically progressive Americans. Additionally, studies are finding that citizen support for the man-made influence of climate change is facing more skepticism than previous years particularly as new science comes on the scene.
On the opposing side, the current administration has shown little fear of taking on numerous and major political challenges. Further, Cap and Trade will likely be used as a major funding source for some of the administration’s long-term societal goals adding additional incentives to not let it slip by the wayside.
With this in mind we will continue to monitor the shifting support for Cap and Trade and will devote more editorial on the matter in coming months. It would be easy to assume that the issue is dead for the time being, and that any implementation would involve a long and aggressive struggle on all sides and not be some slam dunk signed into law over the course of a week’s debate. One can only hope.