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The Cap and Trade Conundrum

By Nathaniel Manning
March 23, 2009
File under: Economy, Environmental Policy, Obama


In Obama’s recent address to Congress he called for the submissions of Cap and Trade policies for the United States of America. It looks as if by the end of 2009 the USA will be the last developed country to adopt a carbon trading scheme, but what will this scheme look like and what will be done with the money earned from the selling of permits?

In short, a Cap a Trade policy puts a cap on the amount of carbon industries and organizations are allowed to expel. These companies would buy pollution permits from the government, and can then buy and sell these permits amongst themselves, so that companies who can reduce more efficiently can sell excess permits to those who are unable to reduce in a financial feasible manner.

The government, as a result, will collect vast sums of new funds from the selling of these permits through the creation of a regulated carbon-polluting market.

There are a three different philosophies at the moment on what should be with this new revenue; the first, that the new funds should be reinvested into the industries and households that will be most affected by the consequential rise in energy prices.

The second thought is that these funds should go towards clean energy research and subsidies to create cheaper alternatives.

Finally, many believe that the government will squander the earnings from selling permits, and thus the funds should be given back to the public in a re-invested dividend, much like the system used in Alaska in which each citizen is given back an equal percentage of the funds earned from taxes on oil drilling.

I (and the Obama administration) propose a combination of the three. Use 40% of the earnings to subsidize clean energy and fund research into newer technologies like a smart grid, solar, wind, and energy efficiency. Use 30% to invest in energy efficiency, building retrofits, and consequently green job creation in the poorest communities who will be hit hardest by the increase in energy prices.

Finally, divide the remaining 30% into a countrywide dividend reinvestment program; this means that every American citizen would receive the same sized check in the mail each year from these funds.

This way we are holding companies financially accountable for polluting, and then using these funds to benefit the American citizen in the large-scale through technology subsides, the targeted-scale through building retrofits for the poorest communities, and the equality-scale through reinvested dividends.

Click here to learn more about your Carbon Footprint.

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