Should the US Implement a Carbon Cap and Trade System?


General Reference (not clearly pro or con)
The US Congressional Budget Office (CBO) stated the following in its Feb. 2008 study "Policy Options for Reducing CO2 Emissions," available at www.cbo.gov:

"Under a tax, policymakers would levy a fee for each ton of CO2 emitted or for each ton of carbon contained in fossil fuels. The tax would motivate entities to cut back on their emissions if the cost of doing so was less than the cost of paying the tax. As a result, the tax would place an upper limit on the cost of reducing emissions, but the total amount of CO2 that would be emitted in any given year would be uncertain.

In contrast, under a cap-and-trade program, policymakers would set a limit on total emissions during some period and would require regulated entities to hold rights, or allowances, to the emissions permitted under that cap. (Each allowance would entitle companies to emit one ton of CO2 or to have one ton of carbon in the fuel that they sold.) After the allowances for a given period were distributed, entities would be free to buy and sell the allowances among themselves. Unlike a tax, a cap and- trade program would place an upper limit on the amount of emissions, but the cost of reducing emissions would vary on the basis of fluctuations in energy markets, the weather (for example, an exceptionally cold winter would increase the demand for energy and make meeting a cap more expensive), and the technologies available for reducing emissions."

Feb. 2008 - Congressional Budget Office (CBO) 
"Policy Options for Reducing CO2 Emissions" (606 KB)  


[Editor's Note: The question at stake, "Should the US implement a cap and trade system?," deals with the concept of cap and trade and is not meant to be a debate specifically about the American Clean Energy and Security Act of 2009 [ACES]. Some "pros" may favor cap and trade and oppose ACES. Some "cons" are against cap and trade, but favor a carbon tax or oppose any form of regulating carbon dioxide emissions.]




PRO (yes)

The United States Climate Action Partnership (USCAP), an environmental and business group partnership, stated in its Jan. 22, 2007 report "A Call For Action: Consensus Principles and Recommendations from the US Climate Action Partnership," available at its website:

"Our environmental goal and economic objectives can best be accomplished through an economy-wide, market-driven approach that includes a cap and trade program that places specified limits on GHG [green house gas] emissions. This approach will ensure emission reduction targets will be met while simultaneously generating a price signal resulting in market incentives that stimulate investment and innovation in the technologies that will be necessary to achieve our environmental goal. The U.S. climate protection program should create a domestic market that will establish a uniform price for GHG emissions for all sectors and should promote the creation of a global market...

Congress should specify an emission target zone aimed at reducing emissions by 60% to 80% from current levels by 2050...

Legislation should permit entities subject to the cap to meet part of their obligations through the purchase of verified emission offsets from a range of domestic sinks, domestic sources of emissions that are not subject to the cap, and projects outside the US. The offset must be environmentally additional, verifiable, permanent, and enforceable."

Jan. 22, 2007 - United States Climate Action Partnership (USCAP) 



Lisa Jackson, MS, Administrator of the Environmental Protection Agency (EPA), provided the following testimony on Apr. 22, 2009 at the US House Committee on Energy and Commerce Hearings on The American Clean Energy and Security Act of 2009, available at the Energy and Commerce Committee website:

"[The Cap and Trade provisions of the American Clean Energy and Security Act] would put in place a declining cap on greenhouse-gas pollution. That market-based system aims to protect our children and grandchildren from severe environmental and economic harm, and great threats to national-security while further invigorating advanced, American energy industries...

Now, the 'no, we can't' crowd will spin out doomsday scenarios about runaway costs. But EPA's available economic modeling indicates that the investment Americans would make to implement the cap-and-trade program of the American Clean Energy and Security Act would be modest compared to the benefits that science and plain common sense tell us a comprehensive energy and climate policy will deliver."

Apr. 22, 2009 - Lisa Jackson, MS 



The Blue Green Alliance, and environmental group and labor union alliance, stated in their Mar. 2009 publication "Policy Statement on Climate Change Legislation," available at its website:

"In response to deepening economic and climate crises, the Blue Green Alliance and its labor and environmental partner organizations — including the United Steelworkers, Sierra Club, Communications Workers of America (CWA), Natural Resources Defense Council (NRDC), Laborers' International Union of North America (LIUNA) and Service Employees International Union (SEIU) — strongly advocate for domestic energy and climate change legislation that will rapidly put Americans back to work with millions of jobs building the clean energy economy and reducing global warming emissions to a level necessary to avoid the worst effects of climate change...

Within this context, the Blue Green Alliance and its partners urge the passage of comprehensive cap-and-trade climate change legislation in 2009...

Climate change impacts and higher energy costs that may accompany a policy that puts a price on greenhouse gases will affect different sectors of our population and regions of our country unequally. Climate change legislation must provide a variety of mechanisms that offset rising energy costs to low- and moderate income Americans and adversely impacted regions of the country. Such mechanisms might include energy efficiency programs, energy rebates and dividends, and tax credits and fiscal incentives for investment in the new energy economy...

We believe in the basic responsibility of government to lead in funding the transition to a clean energy economy. Cap-and-trade auction revenues are one source of those funds."

Mar. 2009 - Blue Green Alliance 



David Schoenbrod, LLB, Trustee Professor of Law at New York Law School, and Richard B. Stewart, LLB, John Edward Sexton Professor of Law at New York University School of Law, stated in their Aug. 24, 2009 article "Cap-and-Trade Bait and Switch," published in the Wall Street Journal:

"As a candidate for president in April 2008, Barack Obama told Fox News that 'a cap-and-trade system is a smarter way of controlling pollution' than 'top-down' regulation. He was right. With cap and trade the market decides where and how to cut emissions. With top-down regulation, as Mr. Obama explained, regulators dictate 'every single rule that a company has to abide by, which creates a lot of bureaucracy and red tape and often-times is less efficient.'...

A cap and trade can be used to tackle carbon emissions more efficiently than top-down micromanagement of technology."

Aug. 24, 2009 - David Schoenbrod, LLB 
Richard B. Stewart, LLB 



Robert N. Stavins, PhD, Director of the Harvard Environmental Economics Program, stated in his Oct. 2007 study "A U.S. Cap-and-Trade System to Address Global Climate Change," available at the Harvard University website:

"The need for a domestic U.S. policy that seriously addresses climate change is increasingly apparent. A cap-and-trade system is the best approach in the short to medium term...

[M]omentum is clearly building toward enactment of a domestic climate change policy. But there should be no mistake about it: meaningful action to address global climate change will be costly...

The environmental effectiveness of a domestic cap-and-trade system for climate change can be maximized and its costs and risks minimized by inclusion of several specific features. The system should target all fossil fuel-related CO2 emissions through an economy-wide cap on those emissions. The cap should be imposed 'upstream,' that is, on fossil fuels at the point of extraction, processing, or distribution, not at the point of combustion. The system should set a trajectory of caps over time that begin modestly and gradually become more stringent, establishing a long-run price signal to encourage investment in emission-reducing technology. It should adopt mechanisms to protect against cost uncertainty. And it should include linkages with the climate policy actions of other countries."

Oct. 2007 - Robert N. Stavins, PhD 



Nathaniel O. Keohane, PhD, Director of Economic Policy and Analysis at the Environmental Defense Fund, provided the following testimony on Apr. 22, 2009 at the US House Committee on Energy and Commerce Hearings on The American Clean Energy and Security Act of 2009, available at the Energy and Commerce Committee's website:

"The next major economic revolution will be the clean energy revolution. A cap-and-trade system that drives American investment and inspires American innovation will position the United States competitively for growth in the global transition to a low-carbon economy. The choice facing us is a stark one: Will we develop and export the coming wave of low carbon technologies — like carbon capture and sequestration, next-generation solar panels, and powerful lightweight batteries — so that jobs and businesses stay in America? Or, will we do nothing and find ourselves importing these technologies from overseas? Failure to act on a cap-and-trade policy would withhold the signals and incentives that can empower the American economy to modernize jobs, services and technologies, and allow the country to emerge from this next phase of global change and competition in the leadership position it holds today.

Now — when our economy is in a deep recession — is precisely the time when bold action is needed most. If climate legislation is passed during this Congress and takes effect in 2012, the impact on energy prices will be zero this year; zero in 2010; zero in 2011. On the other hand, passage of legislation will help to unleash a flood of investment, by sending a clear signal of what the price of carbon will be. Electric utilities and manufacturing companies are waiting for legislation before they invest in new power plants or factories that will last forty years or more. A cap on carbon will drive investment right away...

A cap on carbon will not create money out of thin air. But it will unleash capital that is sitting on the sidelines, and channel it towards clean-energy investments that will revitalize our economy while ensuring a prosperous future."

Apr. 22, 2009 - Nathaniel O. Keohane, PhD 



John Whitehead, PhD, Professor of Economics at Appalachian State University, stated in his Jan. 11, 2009 article "The Case for Cap-And-Trade (or a Carbon Tax) in 2009," available at the Environmental Economics website:

"My feeling is that cap-and-trade legislation should be pursued in 2009, recession be darned. Benefit-cost analyses indicate that addressing climate change, at least in a small way and then 'ramping up' to something more significant over time, is a good idea.

The economic case for cap-and-trade (or a carbon tax) is clear. Climate change and the associated negative impacts of emissions are known in economics as negative externalities. Much theoretical and empirical research supports an environmental regulation that taxes the polluting activity (or, equivalently, capping the pollution with permits and allowing polluters to trade the permits). The additional production cost of taxes or permits causes profits to be lower in the polluting industries, the supply of the polluting product falls and price of the polluting good rises. As the price of polluting goods rise consumers use less of the polluting good. As the price of nonrenewable energy rises and the price of renewable energy falls (with technological improvement) we reach the Hotelling 'switch point' and the demand for renewable energy rises. The price of nonrenewable energy is, more or less, capped at the price of the renewable substitute and the world is a greener place."

Jan. 11, 2009 - John Whitehead, PhD 



CON (no)

Nicolas Loris, Research Assistant at the Heritage Foundation's Roe Institute for Economic Policy Studies, and Ben Lieberman, JD, Senior Policy Analyst at the Heritage Foundation's Roe Institute for Economic Policy Studies, stated the following in their July 8, 2009 article "Cap and Trade Sold Under False Pretenses," available at the Heritage Foundation's website:

"Cap and trade is nothing more than a massive energy tax...

The goal of cap and trade is to drive up the costs of energy in order for people to use less of it...

The alleged benefit from cap and trade is that the regulations will reduce carbon dioxide emissions enough to slow warming and reduce global temperatures...

According to climatologist Chip Knappenberger, Waxman-Markey [American Clean Energy and Security Act of 2009] would moderate temperatures by only hundredths of a degree in 2050 and no more than two-tenths of a degree at the end of the century. Even EPA Administrator Lisa Jackson concurred, recently saying, 'I believe the central parts of the [EPA] chart are that U.S. action alone will not impact world CO2 levels.'

A multilateral approach would not fare much better. In the case of international cooperation, India, China, and the rest of the developing world would have to revert to their 2000 levels of CO2 emissions by 2050. On a per-capita basis, China would backtrack to about one-tenth of what the U.S. emitted in 2000. India and most of the developing world would have to drop to even lower levels. This scenario, in addition to being highly unlikely, would de-develop the developing world...

It is important to remember that everything policymakers have promised this bill will do will in fact do the opposite. Cap and trade will drive up energy costs for years to come, resulting in economic pain and higher unemployment."

July 8, 2009 - Ben Lieberman, JD 
Nicolas D. Loris 



Myron Ebell, MSc, Director of Energy and Global Warming Policy at the Competitive Enterprise Institute, provided the following testimony on Apr. 22, 2009 at the US House Committee On Energy and Commerce Hearings on The American Clean Energy and Security Act of 2009, available at the Energy and Commerce Committee website:

"Cap-and-trade has been widely sold as a 'market-based approach' to reducing emissions. This is terribly misleading. Cap-and-trade subordinates markets to central planning. It takes the most important economic decisions out of the hands of private individuals acting in the market and puts them in the hands of government. The record of central planning in the twentieth century has not been judged a success, and most centrally-planned economies collapsed towards the end of the last century. Perhaps the advocates of cap-and-trade can find some glimmer of hope in the persistence of Cuba and North Korea, which are both models of economies that have commendably low, indeed negligible, greenhouse gas emissions...

[A] cap-and-trade regime would be the single largest government intervention in the economy and in people's lives since the Second World War. That was the last time—and we hope it remains the last time—when people had to present ration coupons in order to buy gasoline (and many other products including cars, tires, sugar, coffee, meat, cheese, butter, and shoes). While the debate has focused on costs, far too little attention has been paid to the extent that political and economic freedoms would be lost or impinged upon under a cap-and-trade regime...

Many promoters of cap-and-trade have claimed that the costs will turn out to be much lower than mainstream economic models have predicted. A few have even claimed that cap-and-trade will be a net benefit to the economy. In reality, the costs of cap-and-trade to consumers will be much higher than the net loss of GDP predicted by the models...

[F]or many advocates, the primary attraction of cap-and-trade appears not to be reducing emissions, but rather the promise of colossal transfers of wealth from consumers to big business special interests and to government...

The fact is that the only demonstrated method for cutting emissions significantly is economic collapse."

Apr. 22, 2009 - Myron Ebell, MSc 



The Indigenous Environmental Network (IEN), stated the following in an article written by its Executive Director Tom Goldtooth titled "Carbon Trading, Carbon Offsets and RED/D's: Reduction Emissions from Deforestation and Land Degredation," available at its website (accessed Aug. 28, 2009):

"History has seen attempts to commodify land, food, labor, forests, water, genes and ideas. Carbon trading (emissions trading) and carbon offsets follow in the footsteps of this history and turn Mother Earth's carbon-cycling capacity into property to be bought or sold in a national and global market. Through this process of creating a new commodity – carbon (CO2) - the Earth's ability and capacity to support a climate conducive to life and human societies is now passing into the same corporate hands that are destroying the climate. Promoters of carbon trading and carbon offset regimes support capitalism as the solution to drive environmental change and innovation to address climate change...

The Indigenous Environmental Network (IEN) has consulted with indigenous spiritual people, from the North and South, about the proposals to put a price on air (carbon), to privatize the atmosphere (property rights of the air), and about a world that will have governments and corporations selling, bartering and trading carbon and other greenhouse gases. Once the idea of carbon trading and carbon offsets have been thoroughly explained (which has not been easy and rarely done adequately by pro-carbon trading/offset profiteers, brokers and political supporters), many Indigenous Peoples have said it is a 'corruption of the sacred'. To participate in this carbon trading/offset schemes violates indigenous traditional knowledge and our Indigenous Original Instructions or spirituality (cosmovision) consciousness."

Aug. 28, 2009 - Indigenous Environmental Network (IEN) 



James E. Hansen, PhD, Adjunct Professor at the Columbia University Earth Institute, provided the following Feb. 25, 2009 testimony to the US House Committee on Ways and Means Hearing on Scientific Objectives for Climate Change Legislation, available at the Committee on Ways and Means website:

"We must put a price, a rising price, on carbon emissions.

There are two competing ways to achieve that price:

One is Tax & 100% Dividend – tax carbon emissions, but give all of the money back to the public on a per capita basis...

The alternative to carbon tax and 100% dividend is Tax & Trade, foisted on the public under the pseudonym 'Cap & Trade'...

'Cap & Trade' increases costs to the public as does 'Tax & Dividend', but without the dividend. Thus it should be termed 'Tax & Trade'... parties support 'Cap & Trade' because they hope to profit – it is a give-away to special interests, who feel, based on extensive empirical evidence, that they will be able to manipulate the program through their lobbyists...

The worst thing about cap-and-trade, from a climate standpoint, is that it will surely be inadequate to achieve the sharp reduction of emissions that is needed. Thus cap-and-trade would practically guarantee disastrous climate change for our children and grandchildren...

The greatest injustice is to our own species – our children, grandchildren and the unborn, and people who live with nature, who we may call 'undeveloped', indigenous people who want only to live their lives without bearing burdens that we create...

The honest approach, the effective approach, for solving the global warming problem would be a tax with 100% dividend...

Empirical evidence shows that Cap & Trade does not have a prayer of phasing out fossil fuel emissions fast enough to save the planet."

Feb. 25, 2009 - James E. Hansen, PhD 



Ralph Nader, LLB, former US Presidential Candidate and Founder of Public Citizen, and Toby Heaps, President and Editor of Corporate Knights magazine, stated the following in their Dec. 3, 2008 article "We Need a Global Carbon Tax," published in the Wall Street Journal:

"If President Barack Obama wants to stop the descent toward dangerous global climate change, and avoid the trade anarchy that current approaches to this problem will invite, he should take Al Gore's proposal for a carbon tax and make it global. A tax on CO2 emissions -- not a cap-and-trade system -- offers the best prospect of meaningfully engaging China and the U.S., while avoiding the prospect of unhinged environmental protectionism.

China emphatically opposes a hard emissions cap on its economy. Yet China must be part of any climate deal or within 25 years... its emissions of CO2 could amount to twice the combined emissions of the world's richest nations, including the United States, Japan and members of the European Union...

Cap-and-traders assume, without much justification, that one country can put a price on carbon emissions while another doesn't without affecting trade or investment decisions. This is a bad assumption...

[A]dministering billions of dollars of carbon credits in a cap-and-trade system in an already chaotic regulatory environment would invite a civil war between interest groups seeking billions in carbon credit handouts and the regulator holding the kitty. By contrast, a uniform tax on CO2 emissions levied at a small number of large sites would be relatively clear-cut."

Dec. 3, 2008 - Toby Heaps 
Ralph Nader, LLB 



The Institute for Energy Research (IER) stated in its Mar. 12, 2009 article "Cap and Trade Primer: Eight Reasons Why Cap and Trade Harms the Economy and Reduces Jobs," available at its website:

"Reasons why Cap and Trade is a Bad Idea:

Cap and trade is designed to increase the price of 85 percent of the energy we use in the United States. That is the point. For it to 'work,' cap and trade needs to increase the price of oil, coal, and natural gas to force consumers to use more expensive forms of energy...

Cap and trade schemes for carbon dioxide have not worked to reduce emissions. Europe's Emissions Trading Scheme (ETS) began in 2005. The first phase, from 2005 to 2007, did not reduce carbon dioxide emissions. Instead, overall emissions increased 1.9 percent over that period...

Cap and trade will assess a heavy penalty on Canadian oil. Much of the oil we get comes from its vast reserves of oil sands. Because it requires more energy to extract the resources from those sands than it does to produce oil in the Middle East, cap and trade will make Canadian oil more expensive than oil from the Middle East.

Cap and trade, therefore, creates incentives to import more oil from the Middle East, not less. Cap and trade also penalizes domestic oil extraction from oil shale."

Mar. 12, 2009 - Institute for Energy Research