A US Federal Carbon Cap and Trade System

Can Obama’s Carbon Credit Plan Deliver a Carbon Dividend to America

Mar 17, 2009

When USA implements a cap and trade system, the impact on global carbon markets will be incredible. Can that system generate wealth at home for the people of America?

Carbon credits are the newest international commodity. At its simplest, a carbon credit is one ton of carbon avoided or removed from the atmosphere. This new commodity has a projected value in the trillions of dollars on carbon trading markets throughout the world.

When the United States implements its home-grown cap and trade system, it will put into place a system that will generate wealth where there was none before. By placing a value on carbon emission reductions, they will give a shot in the arm to both the private and public sectors. The Administration claims $636 billion dollars can be generated for the public coffers over the first five years.

The cap and trade system will generate wealth beyond the revenue for the federal government’s coffers. As well, there will be revenue for the companies, organizations, farmers, and any other folks who create emissions reducing projects. Private industry and agri-businesses stand to earn ‘carbon credits’ and realize a new revenue stream that had previously been unavailable to them.

How Does Cap and Trade Work

To establish a cap and trade system the government places a limit (or cap) on the amount of greenhouse gas emissions large emitters are allowed to produce each year. The limits are either set by a pre-determined allocation that is established by the government or an auction is held that allows companies to bid for right to emit. Emission reduction units are auctioned by the ton. Companies that suspect they might exceed their cap can buy credits from emission reductions elsewhere to ‘offset’ their surplus. With some restrictions, they can buy credits from other companies that have managed to reduce beyond their cap or from project producers who make credits from projects such as renewable energy, landfill gas capture, or good forestry and agriculture practices.

Emission reductions must be verified by a third party auditor and registered through the government registry. Examples of existing carbon credit systems in the United States include:

Wealth Creation from Emission Reductions

The trading side of cap and trade can generate millions of dollars in transaction fees and new wealth. If the government allocates emission reductions by auction, the revenue from the auction represents a new revenue stream for public coffers. In the Regional Greenhouse Gas Initiative of the North Eastern States, the monies raised from their auction of allocation units is dedicated to energy efficiency, renewable energy, and demand side management programs. Similarly, the Obama administration proposes to channel much of auction revenue from their system into energy efficiency and renewable energy. Opposition critics argue that a significant portion of the revenue from the auction should be directed to taxpayers in the form of tax credits.

Whichever way the politicians decide to use the money, the cap and trade system proposed by the US administration promises to generate new government revenue and offers the potential for private entrepreneurs to create wealth with new emission reductions and the money from carbon credits. There are two sides of the carbon opportunity coin that will see the carbon system of Obama pay dividends for America.

The copyright of the article A US Federal Carbon Cap and Trade System in Green Business Practices is owned by Elisa Harley. Permission to republish A US Federal Carbon Cap and Trade System in print or online must be granted by the author in writing.