Cap-and-Trade: What the Detractors Forget

The Gulf oil spill is the worst environmental disaster in the nation’s history.  With tragedy comes response, and the Obama Administration is finally talking energy legislation. One prominent solution is a “cap-and-trade” system in order to limit carbon emissions from polluters. The cap-and-trade system is a market-based system where emissions are capped, allowances to emit the emissions are distributed amongst the polluters, and those polluters trade the allowances amongst themselves by giving the allowances to those who cut pollution in order to reduce emissions most efficiently. If polluter A can cut emissions more cheaply than polluter B, then B pays A to cut A’s emissions, and A gives B the allowances to pollute.

Cap-and-trade, however, has its detractors. (Ironically, many of those detractors are champions of market-based systems.) The critics of cap-and-trade systems complain about two things. They say it will bankrupt the U.S. economy, and they say it won’t work. They are wrong on both counts. The U.S. already has a cap-and-trade system: the Acid Rain Program. It hasn’t bankrupted the U.S. economy. And it is working.

Have you heard of acid rain lately? Probably not. The Acid Rain Program is a cap-and-trade system on the gasses that cause acid rain, and it has made large strides in eliminating the problem by incenting the use of fuels that do not cause acid rain.

President George H. W. Bush signed the market-based Acid Rain Program in 1990. Acid rain has greatly diminished, and the U.S. economy is not bankrupt (from the cap-and-trade system, anyway).

James Barry is in the Class of 2011 at the University of Colorado Law School. In addition to his law degree, James is also a member of the Graduate Certificate Program in Renewable and Sustainable Energy at the University of Colorado. Outside of school, he has worked in a variety of capacities to advance the interests of clean energy: both in the private sector and at policy centers. He specializes is energy regulation and climate change policy at both the state and federal levels.