As the issue of man-made climate change, and the adverse effects it could have on human civilization, becomes more pronounced in international politics, many concrete proposals aimed at curbing the emission of carbon dioxide and other greenhouse gases are beginning to emerge. One of these is the cap and trade system, and although it appears both novel and constructive, it does have its critics and suffers from a number of problems that could derail the whole initiative in the United States.
How Carbon Emission Reduction Trading Works
Formally called "Carbon Emission Reduction Trading," this system essentially enlists the free market in order to facilitate the efficient reduction in the amount of carbon put out by various corporations. According to the Center for American Progress, the end goal of the cap and trade system is the reduction of carbon dioxide output to 80% below 1990 levels by 2050. This will be accomplished by issuing permits to carbon emitters strictly limiting the amount they can release into the atmosphere per year. Every year, this amount would be reduced, until the amount of carbon emissions permitted, drop to the levels described above. However, this is only the first component of the system; the second allows emitters which are more efficient and who emit less than their permitted amount, to sell the right to emit more carbon on the open market. This will supposedly create strong monetary incentives for companies to become more efficient, as it will allow them to profit from reducing their total carbon output.
Also, corporations which need to emit more carbon but have already reached their limit, could also "offset" their emissions through initiatives such as planting trees, or paying other groups not to emit as much carbon. In essence, the government sets the limits on carbon emissions and then lets the free market decide how best to implement them.
Criticisms of the plan
While the system appears promising, critics have emerged alleging both the possibility of abuse, and the negative consequences of adopting it. For example, Matt Taibbi from Rolling Stone Magazine, claims that the international investment banking firm, Goldman Sachs, stands ready to reap immense profits from the packaging and sale of financial products derived from carbon permits. He argues that the two financial bubbles experienced in the last decade (the tech stock bubble and real estate bubble) were made worse by the efforts of Goldman Sachs to artificially inflate the prices of related assets. He points out that several top Goldman Sachs executives have already positioned themselves in key places, to do the same thing with the carbon market, effectively engineering the next destructive bubble.
Additionally, the Washington Post reports that Europe, which has already implemented a cap-and-trade system, is experiencing problems such as German homeowners having to pay 25% more in electricity while electricity companies continue to make profits. Further, many businesses have found increasingly difficult to stay operational and have lost customers to cheaper Chinese imports.
An unknown future
Despite those potential problems, many continue to press for the implementation of some sort of carbon trading system in the United States, including many Democratic political leaders in the House and Senate. While it may be that carbon is reduced in the long run, it remains to be seen what actual effect this will have on worldwide temperatures and what other unintended consequences might arise within the economy and society at large.
