California recently passed a cap-and-trade system to help reduce the state's carbon emissions.

California recently passed a cap-and-trade system to help reduce the state’s carbon emissions.
Image: Creative Commons, Robert and Kathy

Creating market-oriented solutions for reducing carbon emissions seems to be up for debate on both sides.  While conservative and liberal politicians are against it for different reasons (one says it’s a job killer the other says it is a distraction from real change), moderates see a cap-and-trade program as a good first step.  The carbon market in Europe was set up after the Kyoto Protocol was adopted and has seemingly now failed, largely due to carbon targets that were not aggressive enough to create a demand for energy credits.  On the other hand, they were successful in helping European companies meet the targets that had managed to pass.

California recently passed a carbon emissions cap-and-trade program, selling off carbon credits for about ten dollars per metric ton of greenhouse gas equivalents, meaning on average businesses will have to buy about $250,000 in energy credits to get emissions down to goal (1990 levels).  While this is would represent a trivial impact on the environment, many policy makers are watching California to see if the program is successful.  Many believe that a perceived success would nudge the senate to pass a national program.

Does cap-and-trade work?  Companies are given allowances for emissions and then must purchase credits for any greenhouse gases that are over the allowance.  The model essentially does two things: motivates businesses to use less energy and helps purchase clean energy and more efficient equipment for those that would not otherwise have the opportunity to do.  A solid model with aggressive targets and credit price regulation to keep the market from bottoming out would definitely help to reduce emissions.

There are flaws in implementation, however.  Companies with large cash stores could see buying credits as a cheaper option than actually working to reduce emissions, and companies that do not have the cash to make green energy investments could see significant financial blows.  Supply and demand is uncertain, and no one seems able to agree on what is an appropriate emission target.  California’s model may be the last hope for cap-and-trade, and while the world waits to see what happens, the climate gets hotter and more unstable.