Carbon cap, trades could become reality for U.S.

The U has been participating in a voluntary trading system since 2004.

In his budget blueprint presented at the end of February, President Barack Obama asked to establish a nationwide market-based carbon cap and trade system intended to reduce emissions, while generating more than $600 billion over 10 years , but itâÄôs still a contentious issue that faces a number of hurdles before it can become reality. The theory behind a carbon trading system involves the government setting a cap on the total carbon emissions for the country and distributing a finite number of emissions credits to polluters, University of Minnesota applied economics professor Jay Coggins said. Polluters include everyone, from the average citizen to small businesses, but the majority of trading will likely occur between major corporations. Under a carbon cap, polluters would be required to stay under the cap and can do so by reducing their emissions or buying extra credits from other polluters. âÄúSo, somebody who decides they can cut carbon emissions cheaply will reduce more than is necessary,âÄù Coggins said. âÄúThat frees up some of these allowances, which they can then sell to someone else who decides cutting back is really expensive and theyâÄôd rather just keep doing what theyâÄôre doing and buy the allowance.âÄù This system forces companies to reduce emissions, but still gives them flexibility to accomplish the goal in a way that works best for them, Coggins said. âÄúThis is a case where market forces arenâÄôt competing with environmental interests,âÄù he said. âÄúTheyâÄôre on the same sideâÄù Coggins said there are challenges when establishing a market, specifically determining how to distribute credits and who should get the emissions credits. Despite the challenges, he thinks implementing a carbon cap and trade is âÄúfeasible.âÄù While no mandatory carbon trading systems currently exist in the United States, there are a number of voluntary systems up and running, including the Chicago Climate Exchange. The exchange, which was started in 2003 by University alumnus Richard Sandor, is a legally binding system that requires members to reduce their carbon emissions by 6 percent by 2010. The University joined the exchange in 2004 as a way to bring attention to their environmental efforts and to provide students and faculty an up close experience with a developing commodities market, Jerome Malmquist , director of energy management at the University, said. Malmquist said the University has been successful in meeting the emissions reduction goals and that participating in the program has been âÄúbeneficialâÄù to the University. By participating in the program, the University has pulled together extensive data regarding their carbon footprint and it is more accountable in its energy management practices, Malmquist said. âÄúSooner or later, we were going to have to have that information,âÄù he said. âÄúWe know what our carbon profile is with regards to heating and cooling the University. WeâÄôve got that data nailed down tight all the way back to 1998.âÄù While participation in a carbon trading system has worked well for the University, Sterling Burnett , a senior fellow at the National Center for Policy Analysis, a Dallas-based think-tank, said he thinks a mandatory emission trading system will have a negative effect on energy prices in the U.S. âÄúItâÄôs a hidden tax,âÄù Burnett said. âÄúItâÄôs a tax that doesnâÄôt put pressure on the government; it blames industries for imposing higher costs on consumers.âÄù Although ObamaâÄôs budget calls for the majority of the money, $500 billion, to be rolled back into tax credits for the middle class, Burnett said he thinks the system will have an unfair effect on the working poor who donâÄôt pay taxes and would not benefit from the rebates. Burnett also warns that implementing a system that will affect energy prices while the country is in a precarious economic position could be dangerous. âÄúLetâÄôs say the economy has started to turn around âĦ that means energy prices are already rising because demand has increased âĦ so now youâÄôre going to pile on taxes on top of already higher costs, tell me how the consumers are going to like that,âÄù he said. âÄúIt might slow the recovery or reverse it.âÄù