Photo via Abendblatt
With the buckets of controversy and a parade of protesting senators swirling around Obama's proposed carbon cap and trade system, it's easy to forget there's already a pioneering carbon cap and trade system already set up right here in the US. The Regional Greenhouse Gas Initiative orchestrates a cap and trade between 10 northeastern states, and it's holding its third carbon permit auction tomorrow—and it's expected to bring in over $100 million in revenue. Is there anything Obama can learn from it?The Northeast Cap and Trade . . . or Carbon Tax
Tomorrow, permits enabling companies to pollute a ton of carbon will be auctioned off for around a seemingly paltry $3 each—but there are 33.7 million of them.
In practice, the Regional Greenhouse Gas Initiative (RGGI) operates more like a straight up carbon tax than a cap and trade—and a small one at that. Shares go for such low prices that it's unlikely to instigate any companies to adopt cleaner energy technology. As that stodgy pooh-pooher of so many things green, the Wall Street Journal, pointed out when the program began (lord, I hate it when they're right), $3 a ton is waaaaaaaay too low to influence behavior in companies reluctant to green their emissions.
To make it worth sequestering the carbon—a technique we know is far, far, far from ideal—carbon permits would have to be auctioned for at least $25 per ton. To encourage truly clean energy investment, it would have to be even more. From a strictly business perspective, of course. $3 dollars a ton amounts to little more than a pain in the ass for polluting companies.
It is nonetheless a decent example of how a system would operate, as far as the mechanics of the cap and trade are concerned--despite the relatively low impact on actual emissions regulation. And it's a solid example of how such a system can be implemented with (relatively) little political and industry resistance.
Betting on a Carbon Cap?
And, there's an interesting twist in this auction—speculators who believe that a national cap and trade will pass soon, might be inclined to buy extra permits, under the assumption that they'll be more expensive under a nationwide system like the one Obama is pushing. By gauging how sales of these permits fare, Obama's administration might be able to get an idea of the market's expectations of his cap and trade--and whether or not there's confidence it might pass as is.
The participating countries have pledged to use all the money generated to fund renewable energy and consumer benefit projects—for instance, New York is planning on getting Smart Meters, and Massachusetts is expanding energy efficiency efforts and training green workers. Obama should keep this in mind to fuel technology development to give companies impacted by his tax a better shot at getting renewable energy alternatives cheaper and faster.
Obviously this is not an ideal carbon cap and trade system—but any movement towards taxing emissions and funding renewable energy projects is progress in my book. And Obama should be watching closely.
More on Obama's Cap and Trade
Obama Calls for Cap-and-Trade
Carbon Cap And Trade - A Looming Battle Among States