Care to Join the Debate–Cap & Trade or a Carbon Tax

Below is an article that I wrote for our little local newsletter here at the Woods where I live. I wrote it as an informational piece on the California Climate Credit that we are receiving two times a year. Many people here don’t even know they’re are getting it, let alone why. The article took some time to research and write. I was taken aback when the editor of the newsletter said that he didn’t want to print it. It wasn’t appropriate for a “senior” park and the first paragraph, if it was intended to be funny, wasn’t. He happened to be one of the married husbands mentioned. I told him he was the editor and it was his decision to make. The readers of this blog can let me know what you think.

Since I took the time to write it, I’ve decided to turn it into a discussion on two methods of controlling our carbon emissions. If we are ever going to get our emmissions down, one or both of these methods is going to have to be used. They are a cap-and-trade program and a carbon tax/fee. I’m not an expert in this field but as usual have collected a few articles out there on the Internet. First of all-my article.


By Richard Hubacek

If you are a male and married here at the Woods you may have missed the fact that two times a year you are getting a California Climate Credit on your electric bill. My theory which is based on talking to two male husbands is that the wife handles the paying of the bills. You should ask her if she’s already spent it. Perhaps the rest of you don’t pay too much attention to your electric bill. You just pay it and then file the paperwork away. Maybe you should pay more attention. Reducing your use of electricty could help save the planet.

So what is that credit about? Back in 2006 we voted on and passed the California Global Warming Solutions Act of 2006(AB32). This act stated:

The Legislature finds and declares all of the following:

(a) Global warming poses a serious threat to the economic well-being, public health, natural resources, and the environment of California. The potential adverse impacts of global warming include the exacerbation of air quality problems, a reduction in the quality and supply of water to the state from the Sierra snowpack, a rise in sea levels resulting in the displacement of thousands of coastal businesses and residences, damage to marine ecosystems and the natural environment, and an increase in the incidences of infectious diseases, asthma, and other human health-related problems.

AB 32 requires California to reduce it’s greenhouse gas(GHG) emissions to 1990 levels by 2020 — a reduction of approximately 15 percent below emissions expected under a “business as usual” scenario. AB 32 directs the California Air Resources Board (ARB) to be the lead agency to implement the law. Just one of the tools that the ARB is using to get to the mandated reductions is a Cap-and-Trade Program. Strangely the California program is currently linked to the Canadian Province of Quebec. This program is why you are getting a $29.81 credit two times a year.

What is a Cap-and-Trade Program you ask? The ARB defines it this way:

Cap-and-trade is a market based regulation that is designed to reduce greenhouse gases
(GHGs) from multiple sources. Cap-and-trade sets a firm limit or cap on GHGs…The cap will
decline approximately 3 percent each year beginning in 2013. Trading creates incentives to
reduce GHGs below allowable levels through investments in clean technologies. With a
carbon market, a price on carbon is established for GHGs. Market forces spur technological
innovation and investments in clean energy.

My simple way of looking at it is that certain greenhouse gas emitting industries will now have to pay for polluting our air and those emissions will have to be reduced over time. A great new concept!

The cap-and-trade program will, by itself, not be enough to reach the goals set by AB32. That’s why the money earned from the program will be used on other programs to reduce emissions. Our portion of these earnings, $755.5 million so far, is being given back to consumers and small businesses to protect us from possible rate increases because of the implementation of AB32. The California Public Utilities Commission suggested that, “electricity customers reinvest the money in efficient lightbulbs, smart thermostats, and other energy-saving measures to further reduce costs and to join the fight against climate change.”

I had wanted to explain why I think a carbon “tax” is a more efficient method of reducing emissions then cap-and-trade programs but that will have to be a future article.

So that’s the article I wrote. I have to admit that the ARB’s definition of a cap-and-trade program is a little weak. Let’s define the terms a little better.

CAP seems to be clear:The cap is a limit on the amount of pollution that can be released, measured in billions of tons of carbon dioxide (or equivalent) per year. It is set based on science. It is set to be reduced over the years.

TRADE is a little harder to understand. First you have to understand allowances or permits. ALLOWANCES or PERMITS are distributed or auctioned to polluting entities: one allowance per ton of carbon dioxide, or CO2 equivalent heat-trapping gases. The total amount of allowances will be equal to the cap. A company or utility may only emit as much carbon as it has allowances for.

California and Quebec “auctions” off Greenhouse Gas Allowances. I’ve read that the price for each allowance has been between $10 and $14.

If a company is able to cut its pollution easily and cheaply, it can end up with extra allowances. It can then sell its extra allowances to other companies. This provides a powerful incentive for creativity, energy conservation and investment — companies can turn pollution cuts into revenue. This is where the TRADE comes in.

I want to thank the Environmental Defense Fund (EDF) for help in defining cap-and-trade. EDF feels that, “Cap and trade is the most environmentally and economically sensible approach to controlling greenhouse gas emissions…”

There are cap-and-trade programs working around the world. The European Union’s program, “the European Union Emissions Trading Scheme, was the first large greenhouse gas emissions trading scheme in the world, and remains the biggest. It was launched in 2005 to combat climate change and is a major pillar of EU climate policy.” It has changed significantly since it’s start. Now they are going to the auction format and in the beginning the cap was set too high.

The Regional Greenhouse Gas Initiative (RGGI) is another cap-and-trade system that covers nine states in America’s northeastern corner.


RGGI just had its most successful auction of carbon permits yet. RGGI has finally gotten it’s act together. RGGI’s cap was too high. In fact it was higher then current emmissions. Not a smart move.

So the states got together and decided to lower the cap, dramatically dropping it from 165 million tons of carbon dioxide in 2013 to 91 million tons in 2014. From there, the plan is to ratchet it downward year by year to just over 78 million tons in 2020. The jump to $4 per ton and now to $5.02 suggest the move worked.

There use to be ten states involved in the program instead of the current nine. That’s because Governor Chris “Bluster” of New Jersey took his state out of the program.

Christie told reporters recently that he thought the nine-state Regional Greenhouse Gas Initiative (RGGI) that New Jersey formerly participated in was “a completely useless plan” and that he “would not think of rejoining it.”

The New Jersey legislature is attempting to go around him. No pun intended.

Do cap-and-trade programs work? One of the more famous cap-and-trade programs is the EPA’s Acid Rain Program. Remember the 80’s with the talk of acidic rivers and streams and damage to buildings, historic monuments, and statues. You just don’t hear about “acid” rain anymore and the program didn’t bring ruin to this country’s economy as predicted by some people.

Photo by: Steven Godfrey

So let’s talk about a “carbon” tax/fee. I include the term “fee” because the word “tax” is toxic to many people (you know who they are). The picture above is a British Columbia gas pump. Note the green arrow. It uses the word “tax” and it’s popular in British Columbia, Canada.

This Grist article calls it the, “Best Tax Ever”.

Suppose that you live in Vancouver and you drive a car to work. Naturally, you have to get gas regularly. When you stop at the pump, you may see a notice like the one above, explaining that part of the price you’re paying is, in effect, due to the cost of carbon. That’s because in 2008, the government of British Columbia decided to impose a tax on greenhouse gas emissions from fossil fuels, enacting what has been called “the most significant carbon tax in the Western Hemisphere by far.”

A carbon tax is just what it sounds like: The B.C. government levies a fee, currently 30 Canadian dollars, for every metric ton of carbon dioxide equivalent emissions resulting from the burning of various fuels, including gasoline, diesel, natural gas, and, of course, coal. That amount is then included in the price you pay at the pump — for gasoline, it’s 6.67 cents per liter (about 25 cents per gallon) — or on your home heating bill, or wherever else the tax applies…

If the goal was to reduce global warming pollution, then the B.C. carbon tax totally works. Since its passage, gasoline use in British Columbia has plummeted, declining seven times as much as might be expected from an equivalent rise in the market price of gas, according to a recent study by two researchers at the University of Ottawa. That’s apparently because the tax hasn’t just had an economic effect: It has also helped change the culture of energy use in B.C. “I think it really increased the awareness about climate change and the need for carbon reduction, just because it was a daily, weekly thing that you saw,” says Merran Smith, the head of Clean Energy Canada. “It made climate action real to people.”

…But it also gives you the opportunity to save a lot of money if you change your habits, for instance by driving less or buying a more fuel-efficient vehicle. That’s because the tax is designed to be “revenue neutral” — the money it raises goes right back to citizens in the form of tax breaks. Overall, the tax has brought in some $5 billion in revenue so far, and more than $3 billion has then been returned in the form of business tax cuts, along with over $1 billion in personal tax breaks, and nearly $1 billion in low-income tax credits (to protect those for whom rising fuel costs could mean the greatest economic hardship). According to the B.C. Ministry of Finance, for individuals who earn up to $122,000, income tax rates in the province are now Canada’s lowest.

When you get right down to it, returning the money, earned from either program, back to the consumer is going to be popular and will spark the economy because people will have more money to spend. A recent survey shows that a carbon tax can garner support if revenues are targeted properly.

…results from the latest version of the National Surveys on Energy and Environment (NSEE) provide evidence of substantial public support for a tax on the carbon content of different fossil fuels when specific uses of tax revenue are attached. A majority of respondents support a revenue-neutral carbon tax, and an even larger majority support a carbon tax with revenues used to fund research and development for renewable energy programs. The carbon tax coupled with renewable energy research earns majority support across all political categories, including a narrow majority of Republicans.

It turns out that carbon is slowly having a price put on it. This Grist article titled, Within 2 years, a quarter of the world’s carbon emissions are likely to be priced, explains:

Well, it turns out that carbon is getting priced, not in the big, dramatic, simple way climate hawks would prefer, but incrementally, piecemeal, country-by-country, region-by-region, still inadequately but in a way that’s starting to add up.

For a full explanation of the map (and an animated version) and an excellent blog on this subject you can go to Sightline Daily.

So which is best. I like the British Columbia Carbon Tax the best. It’s revenue neutral with money going back to most consumers by way of tax reductions. It doesn’t take a vast bureaucracy (less government) to establish and monitor and people see and know what the tax is for. It’s also the only method that a Republican controlled congress might give some consideration to. A carbon tax was just introduced in the United States Senate.

Are you still with me? That was a long and dry post. Sorry, but I had to do it.

If you want to go on here’s a link to a Forbes (yes Forbes!) article that suggests we are now starting the end of the carbon-energy era. That would be good news.







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