10 12 23 Cap and Trade

Readers following the Climate Change dialogue often hear about Cap and Trade as a policy response to concern about greenhouse gas emissions. What is Cap and Trade?

The “Cap” part of such a policy would target the big CO₂ emitters, such as thermal electricity plants. A cap would be placed on the amount of greenhouse gas these polluters would be allowed to emit into the atmosphere, and this Cap would be lowered over a period of time, slowly enough to allow these plants to make adjustments in the way they do things. To make things easier, these enterprises would also be allowed to “Trade” their right to emit CO₂, so that a plant that is below its Cap or limit would be able to sell that surplus of emission rights to another plant which was over its Cap. The market would determine the price of this right to emit CO₂, and each plant would make a business decision as to whether it would be a better strategy to emit more and pay for that right, or to change how it does things and sell the surplus under the Cap as a source of revenue.

A Cap and Trade policy to deal with greenhouse gases has appeal to many because a similar policy was used to deal with sulphur emissions that resulted in acid rain. It was relatively painless then, and it worked. Acid rain is no longer the problem it was 20 and 30 years ago!

The Manitoba Government is currently considering implementing a Cap and Trade Policy, and is seeking the public's input in an online consultation. If you have an interest in responding to such a consultation, go to our website and click on the “What can I do” tab.

In my mind, Cap and Trade has several serious flaws as an effective tool to deal with the challenges we face as a civilization:

1. It ignores the fact that in addition to spewing carbon dioxide into the air, we are also using up scarce resources, primarily oil, at an alarming rate. It does little to encourage all of us to find energy saving ways of living.
2. It will require a vast, costly bureaucracy to implement. Think of it. Someone will need to assign a Cap to every CO₂ producing plant (can you imagine the negotiation that would go into assigning that?), and the CO₂ emissions of every one of these plants will need to be monitored.
3. A huge industry would spring up whose function would be to find ways of getting Caps raised, arrange Trades, and find loopholes in the legislation that would effectively allow higher Caps.

There is much more. I am only scratching the surface.

Compare this with the Carbon Tax I described last week. The Carbon Tax is much simpler to apply, much harder to avoid, and creates a real incentive for everyone to begin searching for ways of living with less fossil energy.

If you don't like the idea of a tax, consider the Fee and Dividend proposal I will describe next week.

Eric Rempel