Could Cap and Trade Cause the US to Emit More Greenhouse Gases?

cap and trade emit more photo
Photo via Inhabitat

It's discouraging to consider, but it's a distinct, unfortunate possibility. Depending on how the climate bill ends up being structured, cap and trade in the US could end up rewarding companies for emitting more greenhouse gases--precisely the opposite of its intended effect--at least in the short term. Here's how it could happen. The cap and trade model that's most likely to emerge as law is a system that gradually forces companies to reduce their emissions, or pay for permits to continue polluting--without making them pay for their emissions up front. Companies are allotted a certain amount of permits (most of which will be given away for free in the current bill) depending on how much greenhouse gas they emit right now, and then the number of free permits given decreases over the years. See where I'm going with this?

This opens up the possibility that companies could strategically start emitting more pollution than necessary right now (if they haven't already begun), to effectively raise their emissions targets--making it easier and cheaper to reduce them later.

A paragraph in a cost analysis from the Green Inc blog first got me thinking about the prospect:

. . . the allowances would be valuable. That means existing business would strategically adjust their behavior (and probably already are doing so) to be eligible for a larger emission permit. The costs of jockeying for permits are costs in addition to the cost of reducing and reallocating energy production.

For example, a grandfathering system would give businesses emission allowances in proportion to how much they had emitted in the past. Given the monetary value of emission permits, a grandfathering system gives producers a large incentive to, in anticipation of the grandfather awarding of permits, emit more prior to the creation of the cap-and-trade system.


The EPA only announced plans to start making companies report their carbon emissions this year--and the system has hardly gotten off the ground yet. Companies that view cap and trade as a threat to their bottom line could start spewing emissions to their hearts content, and essentially be rewarded financially for doing so.

This is why it's imperative that controls be put in place to penalize heavily polluting companies from the get-go--lest companies buck the system by feeding the fire of climate change under the guise of complying with a bill designed to fight it.

More on Cap and Trade
Democrats Introduce Huge Cap and Trade, Renewable Energy Bill to House
James Hansen Hopes Waxman-Markey Cap and Trade Bill Fails: Has He Lost the Plot?

Tags: Carbon Emissions | Congress | Economics | Global Warming Solutions

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