The Political History of Cap and Trade

How an unlikely mix of environmentalists and free-market conservatives hammered out the strategy known as cap-and-trade

  • By Richard Conniff
  • Smithsonian magazine, August 2009, Subscribe
View More Photos »
Pollution from a power plant
In the '80s, the challenge was to limit acid rain from power plants; now, it's to cut carbon emissions. (Walter Bibkow / Photo Library)

Photo Gallery (1/4)

Fred Krupp

Explore more photos from the story

More from Smithsonian.com


(Page 2 of 3)

It would be an odd alliance. Gray was a conservative multimillionaire who drove a battered Chevy modified to burn methanol. Dan Dudek, the lead strategist for EDF, was a former academic Krupp once described as either "just plain loony, or the most powerful visionary ever to apply for a job at an environmental group." But the two hit it off—a good thing, given that almost everyone else was against them.

Many Environmental Protection Agency (EPA) staffers mistrusted the new methods; they had had little success with some small-scale experiments in emissions trading, and they worried that proponents were less interested in cleaning up pollution than in doing it cheaply. Congressional subcommittee members looked skeptical when witnesses at hearings tried to explain how there could be a market for something as worthless as emissions. Nervous utility executives worried that buying allowances meant putting their confidence in a piece of paper printed by the government. At the same time, they figured that allowances might trade at $500 to $1,000 a ton, with the program costing them somewhere between $5 billion and $25 billion a year.

Environmentalists, too, were skeptical. Some saw emissions trading as a scheme for polluters to buy their way out of fixing the problem. Joe Goffman, then an EDF lawyer, recalls other environmental advocates seething when EDF argued that emissions trading was just a better solution. Other members of a group called the Clean Air Coalition tried to censure EDF for what Krupp calls "the twofold sin of having talked to the Republican White House and having advanced this heretical idea."

Misunderstandings over how emissions trading could work extended to the White House itself. When the Bush administration first proposed its wording for the legislation, the EDF and EPA staffers who had been working on the bill were shocked to see that the White House had not included a cap. Instead of limiting the amount of emissions, the bill limited only the rate of emissions, and only in the dirtiest power plants. It was "a real stomach-falling-to-the-floor moment," says Nancy Kete, who was then managing the acid rain program for the EPA. She says she realized that "we had been talking past each other for months."

EDF argued that a hard cap on emissions was the only way trading could work in the real world. It wasn't just about doing what was right for the environment; it was basic marketplace economics. Only if the cap got smaller and smaller would it turn allowances into a precious commodity, and not just paper printed by the government. No cap meant no deal, said EDF.

John Sununu, the White House chief of staff, was furious. He said the cap "was going to shut the economy down," Boyden Gray recalls. But the in-house debate "went very, very fast. We didn't have time to fool around with it." President Bush not only accepted the cap, he overruled his advisers' recommendation of an eight million-ton cut in annual acid rain emissions in favor of the ten million-ton cut advocated by environmentalists. According to William Reilly, then EPA administrator, Bush wanted to soothe Canada's bruised feelings. But others say the White House was full of sports fans, and in basketball you aren't a player unless you score in double digits. Ten million tons just sounded better.

Near the end of the intramural debate over the policy, one critical change took place. The EPA's previous experiments with emissions trading had faltered because they relied on a complicated system of permits and credits requiring frequent regulatory intervention. Sometime in the spring of 1989, a career EPA policy maker named Brian McLean proposed letting the market operate on its own. Get rid of all that bureaucratic apparatus, he suggested. Just measure emissions rigorously, with a device mounted on the back end of every power plant, and then make sure emissions numbers match up with allowances at the end of the year. It would be simple and provide unprecedented accountability. But it would also "radically disempower the regulators," says EDF's Joe Goffman, "and for McLean to come up with that idea and become a champion for it was heroic." Emissions trading became law as part of the Clean Air Act of 1990.

Oddly, the business community was the last holdout against the marketplace approach. Boyden Gray's hiking partner John Henry became a broker of emissions allowances and spent 18 months struggling to get utility executives to make the first purchase. Initially it was like a church dance, another broker observed at the time, "with the boys on one side and the girls on another. Sooner or later, somebody's going to walk into the middle." But the utility types kept fretting about the risk. Finally, Henry phoned Gray at the White House and wondered aloud if it might be possible to order the Tennessee Valley Authority (TVA), a federally owned electricity provider, to start buying allowances to compensate for emissions from its coal-fired power plants. In May 1992, the TVA did the first deal at $250 a ton, and the market took off.


John B. Henry was hiking in Maine's Acadia National Park one August in the 1980s when he first heard his friend C. Boyden Gray talk about cleaning up the environment by letting people buy and sell the right to pollute. Gray, a tall, lanky heir to a tobacco fortune, was then working as a lawyer in the Reagan White House, where environmental ideas were only slightly more popular than godless Communism. "I thought he was smoking dope," recalls Henry, a Washington, D.C. entrepreneur. But if the system Gray had in mind now looks like a politically acceptable way to slow climate change—an approach being hotly debated in Congress—you could say that it got its start on the global stage on that hike up Acadia's Cadillac Mountain.

People now call that system "cap-and-trade." But back then the term of art was "emissions trading," though some people called it "morally bankrupt" or even "a license to kill." For a strange alliance of free-market Republicans and renegade environmentalists, it represented a novel approach to cleaning up the world—by working with human nature instead of against it.

Despite powerful resistance, these allies got the system adopted as national law in 1990, to control the power-plant pollutants that cause acid rain. With the help of federal bureaucrats willing to violate the cardinal rule of bureaucracy—by surrendering regulatory power to the marketplace—emissions trading would become one of the most spectacular success stories in the history of the green movement. Congress is now considering whether to expand the system to cover the carbon dioxide emissions implicated in climate change—a move that would touch the lives of almost every American. So it's worth looking back at how such a radical idea first got translated into action, and what made it work.

The problem in the 1980s was that American power plants were sending up vast clouds of sulfur dioxide, which was falling back to earth in the form of acid rain, damaging lakes, forests and buildings across eastern Canada and the United States. The squabble about how to fix this problem had dragged on for years. Most environmentalists were pushing a "command-and-control" approach, with federal officials requiring utilities to install scrubbers capable of removing the sulfur dioxide from power-plant exhausts. The utility companies countered that the cost of such an approach would send them back to the Dark Ages. By the end of the Reagan administration, Congress had put forward and slapped down 70 different acid rain bills, and frustration ran so deep that Canada's prime minister bleakly joked about declaring war on the United States.

At about the same time, the Environmental Defense Fund (EDF) had begun to question its own approach to cleaning up pollution, summed up in its unofficial motto: "Sue the bastards." During the early years of command-and-control environmental regulation, EDF had also noticed something fundamental about human nature, which is that people hate being told what to do. So a few iconoclasts in the group had started to flirt with marketplace solutions: give people a chance to turn a profit by being smarter than the next person, they reasoned, and they would achieve things that no command-and-control bureaucrat would ever suggest.

The theory had been brewing for decades, beginning with early 20th-century British economist Arthur Cecil Pigou. He argued that transactions can have effects that don't show up in the price of a product. A careless manufacturer spewing noxious chemicals into the air, for instance, did not have to pay when the paint peeled off houses downwind—and neither did the consumer of the resulting product. Pigou proposed making the manufacturer and customer foot the bill for these unacknowledged costs—"internalizing the externalities," in the cryptic language of the dismal science. But nobody much liked Pigou's means of doing it, by having regulators impose taxes and fees. In 1968, while studying pollution control in the Great Lakes, University of Toronto economist John Dales hit on a way for the costs to be paid with minimal government intervention, by using tradable permits or allowances.

The basic premise of cap-and-trade is that government doesn't tell polluters how to clean up their act. Instead, it simply imposes a cap on emissions. Each company starts the year with a certain number of tons allowed—a so-called right to pollute. The company decides how to use its allowance; it might restrict output, or switch to a cleaner fuel, or buy a scrubber to cut emissions. If it doesn't use up its allowance, it might then sell what it no longer needs. Then again, it might have to buy extra allowances on the open market. Each year, the cap ratchets down, and the shrinking pool of allowances gets costlier. As in a game of musical chairs, polluters must scramble to match allowances to emissions.

Getting all this to work in the real world required a leap of faith. The opportunity came with the 1988 election of George H.W. Bush. EDF president Fred Krupp phoned Bush's new White House counsel—Boyden Gray—and suggested that the best way for Bush to make good on his pledge to become the "environmental president" was to fix the acid rain problem, and the best way to do that was by using the new tool of emissions trading. Gray liked the marketplace approach, and even before the Reagan administration expired, he put EDF staffers to work drafting legislation to make it happen. The immediate aim was to break the impasse over acid rain. But global warming had also registered as front-page news for the first time that sweltering summer of 1988; according to Krupp, EDF and the Bush White House both felt from the start that emissions trading would ultimately be the best way to address this much larger challenge.

It would be an odd alliance. Gray was a conservative multimillionaire who drove a battered Chevy modified to burn methanol. Dan Dudek, the lead strategist for EDF, was a former academic Krupp once described as either "just plain loony, or the most powerful visionary ever to apply for a job at an environmental group." But the two hit it off—a good thing, given that almost everyone else was against them.

Many Environmental Protection Agency (EPA) staffers mistrusted the new methods; they had had little success with some small-scale experiments in emissions trading, and they worried that proponents were less interested in cleaning up pollution than in doing it cheaply. Congressional subcommittee members looked skeptical when witnesses at hearings tried to explain how there could be a market for something as worthless as emissions. Nervous utility executives worried that buying allowances meant putting their confidence in a piece of paper printed by the government. At the same time, they figured that allowances might trade at $500 to $1,000 a ton, with the program costing them somewhere between $5 billion and $25 billion a year.

Environmentalists, too, were skeptical. Some saw emissions trading as a scheme for polluters to buy their way out of fixing the problem. Joe Goffman, then an EDF lawyer, recalls other environmental advocates seething when EDF argued that emissions trading was just a better solution. Other members of a group called the Clean Air Coalition tried to censure EDF for what Krupp calls "the twofold sin of having talked to the Republican White House and having advanced this heretical idea."

Misunderstandings over how emissions trading could work extended to the White House itself. When the Bush administration first proposed its wording for the legislation, the EDF and EPA staffers who had been working on the bill were shocked to see that the White House had not included a cap. Instead of limiting the amount of emissions, the bill limited only the rate of emissions, and only in the dirtiest power plants. It was "a real stomach-falling-to-the-floor moment," says Nancy Kete, who was then managing the acid rain program for the EPA. She says she realized that "we had been talking past each other for months."

EDF argued that a hard cap on emissions was the only way trading could work in the real world. It wasn't just about doing what was right for the environment; it was basic marketplace economics. Only if the cap got smaller and smaller would it turn allowances into a precious commodity, and not just paper printed by the government. No cap meant no deal, said EDF.

John Sununu, the White House chief of staff, was furious. He said the cap "was going to shut the economy down," Boyden Gray recalls. But the in-house debate "went very, very fast. We didn't have time to fool around with it." President Bush not only accepted the cap, he overruled his advisers' recommendation of an eight million-ton cut in annual acid rain emissions in favor of the ten million-ton cut advocated by environmentalists. According to William Reilly, then EPA administrator, Bush wanted to soothe Canada's bruised feelings. But others say the White House was full of sports fans, and in basketball you aren't a player unless you score in double digits. Ten million tons just sounded better.

Near the end of the intramural debate over the policy, one critical change took place. The EPA's previous experiments with emissions trading had faltered because they relied on a complicated system of permits and credits requiring frequent regulatory intervention. Sometime in the spring of 1989, a career EPA policy maker named Brian McLean proposed letting the market operate on its own. Get rid of all that bureaucratic apparatus, he suggested. Just measure emissions rigorously, with a device mounted on the back end of every power plant, and then make sure emissions numbers match up with allowances at the end of the year. It would be simple and provide unprecedented accountability. But it would also "radically disempower the regulators," says EDF's Joe Goffman, "and for McLean to come up with that idea and become a champion for it was heroic." Emissions trading became law as part of the Clean Air Act of 1990.

Oddly, the business community was the last holdout against the marketplace approach. Boyden Gray's hiking partner John Henry became a broker of emissions allowances and spent 18 months struggling to get utility executives to make the first purchase. Initially it was like a church dance, another broker observed at the time, "with the boys on one side and the girls on another. Sooner or later, somebody's going to walk into the middle." But the utility types kept fretting about the risk. Finally, Henry phoned Gray at the White House and wondered aloud if it might be possible to order the Tennessee Valley Authority (TVA), a federally owned electricity provider, to start buying allowances to compensate for emissions from its coal-fired power plants. In May 1992, the TVA did the first deal at $250 a ton, and the market took off.

Whether cap-and-trade would curb acid rain remained in doubt until 1995, when the cap took effect. Nationwide, acid rain emissions fell by three million tons that year, well ahead of the schedule required by law. Cap-and-trade—a term that first appeared in print that year—quickly went "from being a pariah among policy makers," as an MIT analysis put it, "to being a star—everybody's favorite way to deal with pollution problems."

Almost 20 years since the signing of the Clean Air Act of 1990, the cap-and-trade system continues to let polluters figure out the least expensive way to reduce their acid rain emissions. As a result, the law costs utilities just $3 billion annually, not $25 billion, according to a recent study in the Journal of Environmental Management; by cutting acid rain in half, it also generates an estimated $122 billion a year in benefits from avoided death and illness, healthier lakes and forests, and improved visibility on the Eastern Seaboard. (Better relations with Canada? Priceless.)

No one knows whether the United States can apply the system as successfully to the much larger problem of global warming emissions, or at what cost to the economy. Following the American example with acid rain, Europe now relies on cap-and-trade to help about 10,000 large industrial plants find the most economical way of reducing their global warming emissions. If Congress approves such a system in this country—the House had approved the legislation as we went to press—it could set emissions limits on every fossil-fuel power plant and every manufacturer in the nation. Consumers might also pay more to heat and cool their homes and drive their cars—all with the goal of reducing global warming emissions by 17 percent below 2005 levels over the next ten years.

But advocates argue that cap-and-trade still beats command-and-control regulation. "There's not a person in a business anywhere," says Dan Esty, an environmental policy professor at Yale University, "who gets up in the morning and says, ‘Gee, I want to race into the office to follow some regulation.' On the other hand, if you say, ‘There's an upside potential here, you're going to make money,' people do get up early and do drive hard around the possibility of finding themselves winners on this."

Richard Conniff is a 2009 Loeb Award winner for business journalism.


Single Page « Previous 1 2 3 Next »

    Subscribe now for more of Smithsonian's coverage on history, science and nature.



Additional Sources

Crossing the Aisle to Cleaner Air by Kathy McCauley et al., University of Pittsburgh Institute of Politics, 1988


 

Add New Comment


Name: (required)

Email: (required)

Comment:

Comments are moderated, and will not appear until Smithsonian.com has approved them. Smithsonian reserves the right not to post any comments that are unlawful, threatening, offensive, defamatory, invasive of a person's privacy, inappropriate, confidential or proprietary, political messages, product endorsements, or other content that might otherwise violate any laws or policies.

Comments (21)

Hopefully people will solve this situation within the nearest possible time!

Posted by admission essay on December 13,2010 | 03:08 AM

John,
Without cap and trade, polluting companies had no motivation to spend money on a multi-million dollar scrubber. Why spend money on something to prevent pollution when you could just pollute for free? There was no incentive for companies to spend money on scrubbers. However, when cap and trade came into effect and put a limit on emissions, it effectively forced companies to consider these expensive scrubbers as an alternative to fines for not having enough allowances. You don't need to buy allowances for prevented emissions, so in the long run, scrubbers became profitable. This also allowed for social benefit, as the article stated, because environmental quality increased. It doesn't fix all the lakes in New York and Canada that got sterilized by sulfuric acid though... :(

Posted by Carl on March 17,2010 | 11:02 AM

Why use a picture of steam to illustrate an article about alleged carbon emission pollution? The cooling of hot water doesn't emit carbon dioxide or any other pollutant, and using a picture of it is fraudulent.

Posted by Mike Miller on March 17,2010 | 10:17 AM

Big difference... utilities had a *solution* to acid rain - scrubbers. And how much effect did the delay of said legislation allow the technology to catch-up to the desired outcome? Maybe we would be better served by pouring money into solutions similar to scrubbers now?

Posted by John on March 16,2010 | 04:45 PM

The United Nations predicts the world population to peak around 2050 and then decline. For all of you Malthusians out there, you must know that the more advanced countries 1. Use more resources than less advanced countries. 2. The more advanced countries have a declining population. This seems to be a solution in itself.

Posted by David Charlton on March 16,2010 | 02:39 PM

How can Smithsonian waste precious resources on a lengthy history of a subject that has already gone down as one of Paul Feyerabend's Scientific Fables? Please stop with the moralizing of this pseudo-science catastrophe and return to a humbler, yet infinitely more useful approach.

Posted by Ms Anthrope on March 16,2010 | 11:10 AM

"In 1968, while studying pollution control in the Great Lakes, University of Toronto economist John Dales hit on a way for the costs to be paid with minimal government intervention, by using tradable permits or allowances."

Tom Crocker, now at the University of Wyoming, should be credited alongside Mr. Dales. His work was published two years earlier. Is it possible to correct this?

Crocker, T. D. (1966). The Structuring of Atmospheric Pollution Control Systems. The Economics of Air Pollution. H. Wolozin. New York, W. W.Norton & Co.: 61-86.

Posted by Chris on December 18,2009 | 07:47 PM

May I request the citation for the Journal of Environmental Management that is quoted in this article (authors, title, publication month and year etc). Thank you.

Posted by Goel Garcia on November 23,2009 | 11:37 PM

I don’t think anyone would disagree that cleaning up the environment is anything but a noble cause but we have to take into consideration the total effect of our decisions. Increasing the price of a resource, which we have become completely dependent on, such as fossil fuels, may not result in our desired outcome. If the increase of price causes a decrease in GDP it would mean less tax dollars to fund research for alternative energy. Shouldn't we instead be investing in what we know? The world’s population is increasing and its forest life is decreasing. Human beings emit carbon dioxide and trees convert it back. As the population increases, so does the need for homes which are predominately made of wood. Human beings need cars for transportation and electricity for their houses which also emit carbon. It seems to me that the largest factor is population. Why can’t we promote stabilizing the planets population and increase the plant life all the while continuing to search for a more environment friendly resource of energy.

Posted by Blake on November 12,2009 | 08:36 AM

great article - thanks for this history

Posted by sara on October 20,2009 | 02:13 PM

Chris, are you a scientist? Do you realize that the scientific community has reached consensus that humans are speeding up the warming of our planet? I'm wondering how you feel justified to make such conclusions as calling the study of anthropogenically induced climate change "pseudo science." While warming and cooling cycles are a natural phenomenon, we know that CO2 traps heat, that CO2 levels have been significantly correlated with the Earth's average temp throughout history, and that humans are putting massive amounts of CO2 into the atmosphere at ever greater rates. Human induced climate change is real and it's something that needs to be addressed yesterday. Reducing meat consumption and especially that of beef is an awesome way for people to cut down their carbon footprint and environmental footprint in general. Still, we need to start charging the polluters who are destroying our planet.

Posted by Brendan Appold on October 17,2009 | 03:50 PM

Dear Editor,

I must take issue with the comparison of sulfur dioxide emissions and carbon dioxide emissions. Whereas the cause and effect of sulfur dioxide and acid rain is scientifically provable, manmade global warming caused by manmade carbon dioxide emissions is psuedo-science, or more kindly, merely a philosophy.

Living as I do a few miles from Kings Canyon National Park, I see regularly the results of global warming: the absence of 3,000 ft. of glacial ice. Global warming has, and perhaps will again occur. However, to think our puny efforts to curb carbon dioxide can stop or even slow down the forces that emptied Kings Canyon of ice or foolhardy.

On the other hand, eliminating air pollution is a noble cause; but to do the right thing for the wrong reason is ignorance. Cap and trade to slow down carbon emissions from factories is a drop in the bucket when it comes to curbing this otherwise essential element of Earth's atmosphere - and perhaps a crippling economic program with no positive result. If those who are truly interested in the greening of the planet, halting pollution of the oceans and deforestation of the continents is by far the greater cause.

More carbon dioxide is created - or failed to be converted into oxygen - by the cattle industry (which deforests huge tracts of 3rd world land to graze) than all factories combined. Gigantic herds of beef cattle and pigs create vast amounts of "greenhouse" gases. So if you're truly serious about curbing carbon emissions, become a vegetarian. Ah - but meat: this is America's sacred cow ( albeit a dead one)!

Chris Glenn
Badger California

Posted by Christopher Glenn on October 1,2009 | 07:26 PM

I have noticed from time to time that Smithsonian handles topics of political interest with an even hand. The Blue Sky article however betrayed a pronounced bias by labeling power plant emissions as “global warming emissions.” This implies a link between the carbon dioxide emitted by power plants and global temperature. While this is a strong – almost religious- belief of many, including some scientists, it is not a fact. The earth’s surface temperature has been cooling for the last ten years. There is some evidence, based on ice and subsea sediment cores, that increases in atmospheric carbon dioxide lag warming trends – they are an effect of warming, not its cause. Parts of the arctic do seem to be warming, although this is probably due to changes in ocean currents, but other parts of the globe seem to be cooling. Attributing any of this to anthropogenic carbon dioxide emissions is based on conjecture and overparameterized models, not observational science.

Dr. Robert A. Perkins, PE
Professor of Civil and Environmental Engineering
University of Alaska Fairbanks

Posted by Robert A. Perkins on August 19,2009 | 12:53 PM

if you have your advanced level certificate and you want to study history what are the various branches in history that are being studied there

Posted by brian on August 17,2009 | 12:13 AM

I get tired of people not willing to pay for a cleaner environment (and also of people, particularly those with seven-figure incomes, not willing to pay higher taxes to support the multiplicity of benefits we share by living in this country).

Sure cap and trade is likely to increase the cost of certain types of energy, but the alternative is externalizing costs, a practice with which we have become all too proficient. Externalized costs are costs passed on to the general pubic, rather than paid by the consumers of the product produced, as illustrated by the example of the manufacturer described in the article who, and whose consumers, did not have to pay for damage done by irresponsibly-discharged chemical wastes. In the case of CO2 we all are paying, one way or another, for the climate change being wrought, but in all likelihood, our children will pay even more dearly. By paying more now for our energy, we pass on fewer of those costs to future generations and also improve our own environment.

Posted by Roger Hooke on August 13,2009 | 10:16 AM

Cap and Trade for CO2 emissions should work, although it will increase the cost to the electricity consumer, and in some cases significantly via unrestrained pass-throughs. The biggest hurdle will be the issue of assigning a value to the commodity (the emission unit). There are some who advocate a ceiling on the maximum value at first in order to buffer volatility and pass through consumer costs. Others want to have the trading commodity float on the market irregardless of volatility in order to further stimulate the near term effect on reductions from large emitters such as coal fired power plants. I favor a mixed approach with weighted averages assigned to "blocks" of emissions regulated initially to promote large emitter reductions while buffering the impact on small businesses that discharge relatively low levels of CO2. Consumers can be protected from undue pass-throughs if regulators review the pass-through "ratio" and further stimulate efficiency and capital investment via focused regulation. Many of the larger emitters are regulated utilities. Merchant (unregulated)power plants will be harder to deal with initially, thus the need for a rather steep price structure that stimulates sales and subsidize future capital investement in new technology on the part of the emitter.

Posted by Bill Eaton on August 7,2009 | 07:42 AM

When an individual is sick a certain type of medication will cure the problem. For others, the medication will kill them.
Although Cap and trade has worked in some cases, the current Bill under consideration covers such a wide scope of productivity that there is no one in the U S A that will not feel it's effect. That effect of course will be higher cost of almost every product and service received. The only way that a company that knows that it's "Cap" will be exceeded is to install costly equipment or buy additional "Cap". Which ever method is chosen the end results is increased cost and we know that increased cost is passed on the end user which is you and me, the consumer. Equipment does not last forever, it must be repaired or replaced, so the added cost never goes away. The scope of the bill is it's down fall. The emission problem is best dealt with in steps as better methods of improvement are available on the market.

Posted by Lightsey on August 6,2009 | 10:56 PM

I liked the article very much. I missed seeing Garrett Hardin mentioned. He wrote the essay, "The Tragedy of the Commons" that I think fits well with your article. I think it came out in 1970.

Ken Nordin

Posted by Ken Nordin on August 6,2009 | 06:47 PM

Global climate change and CO2 emissions are a far bigger problem than acid rain and require a different methodology.

The simplest approach would be to cap emissions by requiring first suppliers of fossil fuels to have permits to sell fuels according to the greenhouse gas content of those fuels, when burned (as CO2 equivalents). That would then cover ALL fossil fuel use and not just large installations.To make this policy equitable one would require fuel suppliers to buy their permits and then distribute the revenue from the sale of permits to suppliers back to the public.

Note the difference here from cap and trade - in most cap and trade schemes (imposed on users of fuels and not sellers of fuels) the permits are given out free on a grandfathered basis. Since permits have a market value this is effectively a "pay the polluter" system. In the European Union Emissions Trading Scheme large power companies have made huge windfall profits from this. Even though given permits for free they still charge their customers for the market value of these permits when they have to use them - which has caused outrage in some European countries.

If you treat the earth's atmosphere as a scarce resource that can be bought and sold then the market price for permits is effectively a scarcity rent. No one invented or made the earth's atmosphere - this is a pure rent created only by administrative scarcity. So the question should be: who owns this scarcity rent? Naturally the large companies assume that it belongs to them and then the population in general has to pay through the nose for the control of carbon emissions.

Posted by Brian Davey on July 28,2009 | 03:32 AM

I second the idea of an in-depth article by Smithsonian magazine on two-stroke engine pollution by snowmobiles. The idea of charging an carbon emissions fee at registration for snowmobile owners seems reasonable, as does the idea of an allowance for polluting emissions, to be established for ocommunities that allow snowmobile trails. If emissions go above the allowable, there should be fees paid to, maybe the local lung association, hospital, health plan or some such remediation entity. Why not pay for the health problems these carbon emissions cause, let alone the cumulative effects they have on climiate change.

Posted by Betsy Rudee on July 27,2009 | 03:05 PM

The history and explanation of the term "cap and trade" was helpful. I wonder if Smithsonian Magazine might tackle the problem of pollution by two stroke engines in a future article. I live near a snowmobile trail and the ways these engines pollute are numerous and significantly impact the environment. Perhaps along with registrations, snowmobile owners might be given emission allowances to spend. Maybe towns should have to pay for emissions on the trails they allow. I'd be interested to see figures for how much one snowmobile pollutes air, water, sound and light. Please consider reporting on this topic. It is one form of recreation that does impact the rights of others in a community and the riders are a minority of the population at large.

Posted by Linda Bohrer on July 24,2009 | 05:52 PM



Advertisement


Advertisement

Follow Us





First Name
Last Name
Address 1
Address 2
City
State   Zip
Email


Travel with Smithsonian




Smithsonian Store