Environment – Capping-and-Trading Carbon Credits

Both the private sector and the U.S. Congress are working from opposite on the same scheme that is supposed to stop and hopefully reverse global warming – the “cap-and-trade” system of “carbon credits.”

This is how the scheme works:

Carbon dioxide (CO2) is known to be the number one polluter of our atmosphere and thus number one culprit in global warming. Private companies, and especially utility companies that produce energy through fossil fuels like coal, are among the top producers of CO2. And right now there is no limit to the amount of CO2 that such companies can produce.

Thus, someone suggested to create an artificial “scarcity” of CO2, which would be a very good thing.

How do you do that? By passing a law to limit the amount of CO2 that each company can produce.

But what if a company produces LESS than it’s allowed amount? Or what if another company needs to produce MORE carbon dioxide for various reasons?

Then the company that is below its “carbon emission quota” can sell that “right to pollute” on the open market to the company that needs to emit more carbon into the atmosphere. Thus, such “carbon permits” can be sold and bought just like regular stocks in the stock market.

The cap-and-trade system is already in use in Europe at this writing (March 2007) and the prices of such permits tripled within the last two years.

An increasing number of giant corporations in the U.S. are now endorsing the cap-and-trade system thinking they need to be at the table when the nature and amount of caps are decided. I think they are being very smart. You either have a role in determining the rules of the cap-and-trade game or you live by its ramifications. You are either sitting at the steering wheel of this cap-and-trade juggernaut or you are going to get hit by it.

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