The nuts and bolts of cap and trade explained

Peter Behr at Scientific American has a wonderfully clear explanation of just how the cap and trade mechanism prescribed by the Waxman-Markey bill will work, should it make it through Congress. It's not rocket science, but my suspicion is that a lot of observers feel intimidated by the concept and don't make an effort to get their minds around it.

Which is a shame because it's largely a matter of simple math, and Behr turns to Harvard University economist Robert Stavins for help. Here are the essential facts:

In 2016, the U.S. economy would produce an estimated 7.3 billion tons of CO2, based on current growth forecasts. Power generators and other business sectors covered by the Waxman-Markey bill would put out 6 billion tons of emissions under business as usual.

But the cap would restrict their emissions to 5.3 billion tons. Companies could close the gap, 784 million tons, by reducing emissions, shutting down some operations, switching to cheaper fuels, buying allowances from companies that did not need them, or making carbon emission offsets.

There is one small scientific error: Stavins compares a couple of states' emissions outputs in terms of carbon dioxide per megawatt of power when what he should be discussing is carbon dioxide per megawatt-hour of energy. Even better would be pound (or kilogram) per kilowatt-hour, which reduces the numbers to something to which the average homeowner can relate.

But the explanation of how trading permits will work is excellent, and what matters is the ratio of emissions produced and electricity generated: Washington state's emissions are one sixth of those in Indiana, thanks to the former's reliance on hydro and the latter's use of coal. This makes it clear why Waxman-Markey gives away most of the emissions rights permits for the first few years. If all the permits were auctioned, some parts of the country would be at a distinct disadvantage and others would be sitting pretty. On that point, Behr writes:

A computer model run by ClearView Energy Partners estimates that greenhouse gas limits will hit three times as hard in West Virginia, Kentucky and North Dakota, for example, as in Washington state, California or Oregon.

Oil refiners and manufacturers of chemicals, paper, cement and metals will be vulnerable. So will companies that face tough U.S. or foreign competition that makes it hard to pass on higher energy prices.

By choosing to allocate the permits preferentially by sector, Waxman-Markey solves the political problem. Of course, in doing so, it undermines the goal of the bill, which should be all about giving fossil-fuel consumers the strongest possible incentive to find renewable alternatives. This represents a major compromise on the part of those who recognize the threat posed by greenhouse gas emissions and it is a serious weakness. But at least there's a still a shrinking cap, which in theory can do the trick.

Waxman-Markey's reliance on carbon offsets, which allow utilities to pay for international forestation and other carbon sinking projects to get U.S. emissions down to where they need to be, is perhaps more worrisome. Now we're talking about counting on other countries to live up to nebulous obligations. Outsourcing is always a dodgy business.

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No patriotic and informed American can support the global warming/cap and trade scam, more fraudulent than any Nigerian scam.

Cap and trade represents huge taxes and cost increases, which will hurt mostly the poor and the middle class. Cap and trade will give dictatorial powers to Obama and will further enrich his billionaire friends (Gore, Soros, Goldman Sachs, Obamaâs Chicago Climate Exchange friends, GE, etc.) -- all at our expense and at the expense of our children and grandchildren.

Cap and Trade âwould be the equivalent of an atomic bomb directed at the U.S. economyâall without any scientific justification,â said famed climatologist Dr. S. Fred Singer. It would significantly increase taxes and the cost of energy, forcing many companies to close, thus increasing unemployment, poverty and dependence.

Those brainwashed to the point of wanting to destroy the economy to "prevent global warming" are behaving like the most primitive human beings who were duped into believing that human sacrifices would ensure them good weather. Human beings don't have the power to control climate! And killing the economy will not help the environment. Poor countries canât protect the environment. Just look at Haiti!

More and more scientists and thinking people all over the world are realizing that man-made global warming is a hoax that threatens our future and the future of our children. More than 700 international scientists dissent over man-made global warming claims. They are now more than 13 times the number of UN scientists (52) who authored the media-hyped IPCC 2007 Summary for Policymakers.

Additionally, more than 30,000 American scientists have signed onto a petition that states, "There is no convincing scientific evidence that human release of carbon dioxide, methane, or other greenhouse gases is causing or will, in the foreseeable future, cause catastrophic heating of the Earth's atmosphere and disruption of the Earth's climate."

We pray that honest leaders â both Democrat and Republican - are able to save us from Obama's criminal global warming/cap-and-trade scam.

The system is a mess. It is economically equivalent to a carbon tax + subsidies to those who are given those free allowances. The latter part is why politicians love it, of course, since it gives them the opportunity to hand out support to whoever they want to.

Under a scheme like this power companies will be big winners since they can set prices based on the marginal cost, which includes their need to buy additional allowances to increase production, while their actual cost does not include buying allowances for most of their production. They can charge consumers for those allowances without having paid for them in the first place!

Here at Americaâs Power, weâre working to demystify people's energy concerns, too. On our Factuality Tour, weâve been traveling around the country talking to the people who are behind the production of cleaner electricity from coal.

Currently, there are more than 300 clean coal research projects underway around the country â many of which are devoted to carbon capture and storage. In fact, we visited the Tenaska Energy headquarters in Omaha, Neb., where theyâre working on two new facilities that capture and store carbon dioxide.

Check out our site if you can:

By Monica from ACCCE (not verified) on 01 Jun 2009 #permalink

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