Controlling Greenhouse Emissions—Costs vs. Benefits

Cap and Trade legislation is presently being considered for passage by the U.S. Congress. It's controversial because critics claim that it will raise the cost of energy for all Americans during a recession when they can least afford it.

Proponents claim that it can help reduce greenhouse gas emissions that cause global warming and create powerful incentives for individuals and companies to shift from burning fossil fuels to the increased use of renewable sources such as wind, geothermal, solar, hydroelectric, etc.

Cap and trade is a market-based policy tool for protecting human health and the environment by controlling large amounts of emissions from a group of sources. A cap and trade program first sets an aggressive cap, or maximum limit, on emissions. Sources covered by the program then receive authorizations to emit in the form of emissions allowances, with the total amount of allowances limited by the cap. Each source can design its own compliance strategy to meet the overall reduction requirement, including the sale or purchase of allowances, installation of pollution controls, and implementation of efficiency measures, among other options.

In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those who can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.

There already are existing active trading programs in several pollutants—carbon dioxide and nitrogen oxide are two examples. For greenhouse gases the largest is the European Union Emission Trading Scheme. In the United States, there is a national market to reduce acid rain and several regional markets in nitrogen oxides. Markets for other pollutants tend to be smaller and more localized.

Assign students to write a report of at least 150 words or a presentation of at least seven slides. Students should cite at least three resources that address the following essential questions for critical thinking (you should add or substitute others):

• What are major arguments for Cap and Trade legislation in the U.S.?
• What are the major arguments against Cap and Trade legislation? How does Cap and Trade policy affect global warming and energy prices in the long term?
• How does the European Union Cap and Trade policy work?
• What are at least three reasons that you support or object to Cap and Trade and why?

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