Four Elements of Good Carbon Cap Legislation

Posted: 30-Jan-2009; Updated: 08-Jun-2009

The 111th Congress must pass a cap and trade bill that creates jobs and helps our economy while achieving the number one goal: stabilizing our climate. With many proposals under discussion, it's critical to keep these four key elements in mind.

1. Set a limit on pollution, and lower the limit year after year

This is first on the list because it is the cornerstone of any effective climate policy.

• Setting and enforcing a hard cap on pollution is the only way to guarantee we will cut enough pollution. Any other approach leaves the amount of pollution uncertain. The urgent threats of global warming mean we don't have the luxury of uncertainty. We need to be certain that we cut pollution quickly enough.
• Reducing the amount of pollution allowed is also critical. The science is clear [PDF] -- to avoid the most severe impacts of climate change, we must reduce heat-trapping pollution by about 2 percent per year.
  

2. Establish a trading system that includes everyone – from big business to small farmers

Trading allows companies to find the most efficient ways to make reductions, and to profit from any extra reductions that they can make.

• The whole economy stands to benefit. Every economic sector should be allowed to contribute, so we spur investment across many sectors. That means everyone from utilities and waste management to forestry and agriculture can reap the rewards of reducing pollution. 
• Trading unlocks potential. If a trading system were to exclude, for example, farmers, all the potential to cut carbon pollution through farming innovations would remain untapped. Farmers and small businesses would not be regulated, but they would have the chance to profit by voluntarily helping to reduce emissions. An inclusive trading system means that those who can efficiently reduce pollution have incentives to cut as much pollution as they can, no matter what sector they are in.
• Side benefits: Improvements throughout industry. Industry has incentives to invest in improving plants, developing more efficient supply chains or hiring workers. Farmers will explore more environmentally-friendly ways of tilling and planting. Entrepreneurs can use private capital to develop a new generation of clean technologies.

3. Manage cost without a "safety valve"

Some worry that businesses might not be able to afford to buy enough allowances, and propose a so-called "safety valve," which would let them buy allowances at a fixed price. But in order to stabilize our climate, we need a firm limit on the amount of emissions. With a "safety valve," businesses could buy more allowances than the science allows.

• Allows essentially unlimited pollution. The "safety valve" sets a point at which businesses can ignore the cap -- they could simply pay to release pollution beyond the capped level. As noted above, the cornerstone of any effective climate solution is a hard limit on pollution, and the "safety valve" destroys that. 
• Makes it nearly impossible to stabilize our climate. If companies can continue to release carbon even after the limit has been reached, it will be all but impossible to reduce emissions by 2 percent a year.
• Limits the incentive to innovate. A price ceiling also limits the rewards investors anticipate from funding new projects and technologies. We need the full engagement and creativity of the investment community to solve this problem, and we won't get it if we cap their incentives.

4. Allow the purchase of verified offsets

When a company buys an offset, it pays someone else to reduce carbon emissions by a specific, verified amount. See examples of offset projects and a more detailed explanation of offsets.

• The climate doesn't care where pollution comes from. From the climate's point of view, it doesn't matter where or how pollution is created -- all that matters is how many tons of carbon are pumped into the atmosphere. Verified offsets take advantage of this fact to make reductions broadly and flexibly.
• Offsets encourage reductions even outside the cap. Many possible reductions in pollution can come from methods or locations that are not subject to the cap. Allowing the purchase of offsets means taking advantage of more opportunities to cut carbon.
• Offsets give companies flexibility. For example, instead of buying regular allowances, a utility company could pay a farmer to manage their land in ways that keep more carbon in the soil or capture methane emissions from livestock.
• Connect to the global carbon market. Offsets can also allow American companies to both buy and sell carbon globally. We have to cut pollution on a global scale to preserve our climate, and offsets are a mechanism to invite   solutions from around the globe.

See more about how a cap and trade policy works.