Carbon, Cap and Trade

I will apologize in advance for the length of this post. This is an extremely complex bill and even this one portion of it requires a great deal of time to properly address. I promise though, that it is well worth the read since there is so little being said about it elsewhere.

The American Clean Energy and Security Act of 2009 also known as the Waxman-Markey Bill, has more than a few other names. The climate bill, cap and trade and most recently, the largest tax grab in the history of America. Truthfully, I prefer cap and trade. That sounds so harmless, almost like we’re talking about baseball cards. I wonder if we’ll get gum with it!

Today, the focus is on Cap and Trade. The name is a simplification of the process whereby Government will establish a cap on the gross emission of carbon dioxide and allow companies the ability to buy licenses, or credits, to produce the gas as a by product of their individual manufacturing processes. The credits can be transferred from one company to another through an exchange created by the bill. London already has such an exchange and is poised to be the leading trader of this commodity trade in Europe.

The transfer option of the bill will allow companies that have exceeded their carbon dioxide production allotment to purchase the right to continue production from credits that have not been used. In theory, if the available credits reflect the Federal goal for total tonnage for that year, then the trading of those credits will allow companies to continue to operate and still remain below the total goal levels. Additionally, as each transaction to transfer credits takes place, a portion of the credits will be retired and no longer available.

The cap is the upper level of that goal tonnage and is set to incrementally decrease with each year. There are very stringent goals written within the bill and the first tier is a 97% reduction in the 2005 level of Carbon Dioxide production by 2012 with ever decreasing amounts in increments beyond that. It is a very aggressive schedule.

As with any commodity, the potential for greed is ever present and the possibility that the value of this commodity will be severely inflated as the rarity of available credits force the price skyward. The owners of these credits have the option to hold credits until the price is “right”, driving the costs even higher. You already know since your last trip to the store that any increase in the cost of manufacture will be passed directly on to you where you then experience the double insult of paying an even higher sales tax on that item.

There is also the possibility that extremist environmental groups will band together and purchase a portion of these credits for the purpose of retiring them early to accelerate the reduction in greenhouse gas production. That will make the available credits even rarer and more costly.

Since greenhouse gas is a by product of the commercial generation of electricity, utility companies will be affected by this as well. The bill will establish a combined efficiency and renewable electricity standard that requires utilities to supply an increasing percentage of their demand from a combination of energy efficiency savings and renewable energy. These standards also have incremental adjustments that reflect the ultimate goal of the legislation by the year 2050.

Carbon Dioxide has been the main culprit in the debate of global warming simply because the amount that we generate in any given year, but is not by any means, the only greenhouse gas (GHG) that is under scrutiny. The bill will also establish the means to classify these other gasses by their carbon dioxide equivalent. That is to allow control of the production of these gasses utilizing a single comprehensive scale rather than overcomplicating the process with a separate scale for each. After all, if one ton of methane possesses the same potential for global warming as eight tons of carbon dioxide, then let’s just call it eight tons on the equivalent scale and measure apples to apples.

International climate conferences have already concluded that the trends in global warming indicate that this is a man made event. Although they agree it is man made, the timeline regarding the impact of global warming is still under debate and ranges from decades to centuries. There are also scientists that argue that these findings are based on bad science and filtered facts; that the trends we see today are a natural phenomenon caused by cycles in both the output of the sun and the earth’s oceanic and atmospheric currents. Those scientists are generally ridiculed for their views and their colleagues claim they are a minority of the total body of scientists looking at the issue. The scientists that oppose the man made global warming theory have accused that their findings have been summarily dismissed for political reasons and their reports have been dissected with only minor portions of the data ever allowed into the discussion.

With the United States embarking on the road to a massive comprehensive environmental policy it begs to ask, what is the rest of the world doing? Sixty of Germany’s leading scientists have written a joint open letter to the German President urging that Germany not sign into an agreement of this magnitude. The largest emerging industrial nations, China and India, have already stated that will not agree to any climate treaty that will alter the strength or potential of their economy and without these nations; the effort, pain and financial burden the United States will bear will be meaningless in the aggregate and result, if the science is correct, in only a .5 degree Celsius reduction in global temperatures by 2050.

Tomorrow I will take on the “Smart grid”. It is an integral part of the plan to cap the demand of electricity and the part of this bill that will have the most apparent and immediate affect on you, the American citizen.

See you tomorrow,

Paul