U.S. Cap-and-Trade Lives On

Cap and trade still exists in various forms on Capitol Hill, including in the new fuel efficiency standards for vehicles that President Obama regularly extols on the campaign trail as one of his most significant achievements.

"After 30 years of inaction, we raised fuel standards so that by the middle of the next decade, your cars and trucks will go twice as far on a gallon of gas," Obama said last week in Miami.

To meet the ambitious standard – from 29.7 mpg today to 54.5 mpg by 2025 – automakers are now allowed to exchange greenhouse-gas emissions credits between companies. This is a change from before 2012, when a car company could transfer only fuel-economy credits, and those only within its own fleet.

Various national cap-and-trade systems exist, and most of them have been created by Republican presidents. The renewable-fuels standard, a policy enacted under President George W. Bush that requires production of more biofuels each year than the year before, allows refiners to buy and sell credits to meet the standard. (In this case, it is a reverse cap, but the basic concept is the same.)

Another cap-and-trade program, implemented under President Nixon, was considered successful in phasing out lead in gasoline. And the 1990 Clean Air Act amendments, shepherded through Congress by the George H.W. Bush administration, created what was also deemed a successful cap-and-trade program to reduce sulfur-dioxide and nitrogen-oxide emissions that cause acid rain.

No matter who wins the White House in November, the next administration will face mounting pressure from environmental groups and a coalition of states to make good on a legal agreement to promulgate these rules, which have languished in regulatory limbo amid election-year politics.

Controlling carbon emissions from power plants would be one of the biggest regulatory actions an administration could take to address climate change. Electricity is the biggest source of greenhouse-gas emissions in the country. It produces about a third of those emissions, and most come from burning coal and natural gas, the fuels at more than 70 percent of the 5,800 existing power plants. Most economists and utility lobbyists agree that cap-and-trade policy is better than the command-and-control system EPA traditionally implements, which requires companies to meet a standard without allowing trading of emissions credits.

Posted on Wednesday, October 17, 2012 (Archive on Monday, January 1, 0001)
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