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 We are hearing a lot about "cap and trade" these days. Yet, when I try to engage even some of my most thoughtful acquaintances on the subject, I mostly get a blank stare. It is curious that what may be the most effective economic tool to reduce carbon emissions is so little in the common parlance. The reason could be that getting a handle on the topic requires just a little stretch of the brain muscle and a wide-angle look at how government policy and free enterprise often wave at each other completely out of synch. An illustrating parallel to the local level may help the thoughtfully challenged. Homeowners are used to paying for trash collection. If everyone just pitched their refuse into the street, the accumulation of garbage would overflow front yards and back yards. So we don't mind paying for waste disposal, either through taxes or private contractors. However, until tougher environmental laws were passed, businesses would indiscriminately discharge polluting waste into the water and air. For centuries our manufacturing sector did not bear the true cost of dealing with its waste. In limited amounts, perhaps dilution is the solution to pollution, but when the amounts reach a high enough level, there is too much to dilute, and the presence of industrial waste spills over into everyone's front yard and back yard. At that point we all end up having to pay for it. Polluted air and water cause disease and a myriad of other expensive problems. It is only right and proper that the cost of disposal (or better yet prevention) be borne at the source by the polluters. Of course, that may increase the cost of production and that cost gets passed along to consumers, but that's they way it should be. The true cost of manufacturing a product should include the cost of dealing with waste disposal. In the long run, working the problem at its source is less expensive than dealing with the multiplier effect of its unchecked consequences. After decades of environmental laws, our culture for the most part accepts this principle. The definition of polluting waste is now expanding. Carbon dioxide, that colorless, odorless gas already part of the air that we breathe every day of our lives, has become the primary culprit in global warming because of all our machines that discharge so much of it. We are like a community with no trash collection: every neighbor's garbage is piling up in each other's front yard and back yard. We're being smothered. But unlike garbage, carbon dioxide cannot easily be collected and disposed of. The better approach is to reduce its production at the source. The problem is that simply outlawing the discharge of carbon dioxide is like telling industry to stop breathing. Cap and trade is the strategy to provide disincentives and rewards. First, government sets a cap on the amount of carbon dioxide emissions by industry. Next, anyone who discharges less than the allowable cap has a transferable permit to pollute which can be traded or sold to anyone that is unable to reduce its carbon dioxide emissions below the cap. It would be as if the county were to declare that each homeowner may put out only two garbage cans per week. That's easy for my wife and me. It's just the two of us, and we have a trash compactor, so we need only one. But two garbage cans a week are not enough for my neighbor who has six children, three still in diapers. So I would rent my unused garbage can to my neighbor for as much as he can stand to pay. He is now able to exceed the two-can cap, and he has an extra incentive to get his kids toilet-trained so he can stop paying me for the third. After a while, everyone gets better at reducing their trash output, and the county reduces the cap to one garbage can a week. That's cap and trade. Many of us remember concerns over acid rain. Sulfur dioxide emissions from burning coal caused rain in some parts of the world to fall with an acidity comparable to lemon juice. The 1990 amendments to the Clean Air Act imposed a cap and trade system on power plants that resulted in total compliance with reducing sulfur dioxide emissions in the A lot of science goes into determining the amount of the cap, and a lot of politics are in the mix. Controversy abounds on setting the trading prices and whether the additional cost imposed on business will intolerably burden an ailing economy. But whether alarmist rhetoric or sensible caution, the critical dialogue cannot lose sight of the monstrous costs we face in money and lives if nothing is done. John P. (Jack) Machen is a real estate attorney in the Baltimore office of DLA Piper LLP (US), a global law firm with over 3,500 lawyers in 28 countries. In addition to his law practice, Mr. Machen is certified by the U.S. Green Building Council as a LEED Accredited Professional and provides advice to his firm and to clients on green building, green building codes, sustainability and resource conservation. |
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Greenwashing (March 2010) Offshore Wind Turbines (November 2009) Shopping Bag Art (September 2009) Global Warming Denied (August 2009) Telecommuting and Waxman-Markey (July 2009) Cap & Trade (June 2009) The Energy Audit (June 2009) Workplace Compliance (May 2009) Learning Green (May 2009) |
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