What is Cap and Trade?
In case you haven’t been following it, “Cap and Trade” is a generic shorthand term describing a proposed system for reducing pollution, or at least keeping a lid on pollution.
WiseGeek has one of the clearest definitions of Cap and Trade: A cap and trade system is a method for managing pollution, with the end goal of reducing the overall pollution in a nation, region, or industry. Many proponents of pollution control support the concept of cap and trade systems, arguing that they are extremely effective, and that they make sense economically as well. Such a system is only one option among many for reducing the emission of pollutants, most notably carbon dioxide, a greenhouse gas which has attracted a great deal of attention due to its environmental impacts.
Under a cap and trade system, a government authority first sets a cap, deciding how much pollution in total will be allowed. Next, companies are issued credits, essentially licenses to pollute, based on how large they are, what industries they work in, and so forth. If a company comes in below its cap, it has extra credits which it may trade with other companies.
Most recently “cap and trade” has been used to refer to a greenhouse-emissions reducing bill before Congress, called the Waxman Markey bill (PDF), named after two Democratic congressmen from California and Massachusetts, respectively. That bill was scheduled for a vote on June 26, 2009 in the House, as of the time of this writing.
A Politically Charged Issue
One reason this is such attractive fodder for cable news shows is that the Waxman Markey bill is a politically-charged social and economic issue (which pretty much guarantees it will bring out strong opinions here, no matter what I say about it).
On the one side is President Obama, who urges the bill’s passage, citing it as a path to a greener economy. In recent remarks he noted it would “spark a clean energy transformation that will reduce our dependence on foreign oil and confront the carbon pollution that threatens our planet.”
On the other side are conservatives, who mostly claim it will wreck the economy and drive business to its knees. The Heritage Foundation is one of the leaders of the criticism of the bill. According to the Heritage Foundation analysis:
“The result is government-set caps on energy use that damage the economy and hobble growth--the very growth that supports investment and innovation. Analysis of the economic impact of Waxman-Markey projects that by 2035 the bill will:
- Reduce aggregate gross domestic product (GDP) by $7.4 trillion,
- Destroy 844,000 jobs on average, with peak years seeing unemployment rise by over 1,900,000 jobs,
- Raise electricity rates 90 percent after adjusting for inflation,
- Raise inflation-adjusted gasoline prices by 74 percent,
- Raise residential natural gas prices by 55 percent,
- Raise an average family's annual energy bill by $1,500, and
- Increase inflation-adjusted federal debt by 29 percent, or $33,400 additional federal debt per person, again after adjusting for inflation.”
In fact, the Heritage Foundation is so opposed, that they’ve created a Rapid Response section on their website about this issue.
Likelihood of Passage
According to one commentator, there’s a greater likelihood of passing a climate bill than passing a healthcare bill this year. Says the Climate Progress blog:
“ … what has been obvious to some of us for a while is now I think becoming painfully obvious to the White House and Congressional Democrats: A serious climate bill is politically easier than a serious health care bill.
The reason is simple. It comes down to three letters of the alphabet — CBO. The climate bill always had one big advantage — it pays for itself. Most of the serious health care reform options on the table, however, add more than $1 trillion to the federal budget deficit according to the Congressional Budget Office.”
How Much Does Cap and Trade Affect Small Businesses?
One thing that is not clear to me is how much of an issue the Waxman Markey bill is to small businesses. I can see how Big Industry could view it as bad news due to the additional costs – but for smaller businesses, will it be devastating?
According to the Small Business and Entrepreneurship Council, it would. While I respect the opinion of Raymond Keating, the economist for the SBE Council, the items he cites to support opposition to the bill, tend to be more big business and consumer related issues. And while I realize that small business owners are consumers ultimately and they we operate in a macro-economic environment, I’m not sure how big an impact a bill such as Waxman Markey would make specifically on the small-business economy.
I would like to hear from you on that point – do you see a Cap and Trade bill like Waxman Markley causing a serious and negative impact on your business? Or are the societal benefits worth it?