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The Cap and Trade Debate Continues


The United States Senate recently voted against adopting major climate legislation that would put nationwide limits on the emission of greenhouse gases such as carbon dioxide. Analysts say the Lieberman-Warner Climate Security Act, named for the two Senators who sponsored it -- Independent Democrat Joseph Lieberman and Republican John Warner -- probably will not be reconsidered until next year. But the bill introduced into the national debate a provision called "cap and trade" -- a system designed to give businesses an economic incentive to stop polluting.

Most environmentalists agree that greenhouse gas emissions bear at least some responsibility for global climate change and that they should be limited. Under a federal cap and trade system, the government would set that limit. The Lieberman-Warner bill, for example, would have fixed greenhouse gas emissions at about their 2005 levels. The cap would have decreased by mid-century with the goal of reducing emissions to 70 percent below those levels.

How It Works?

Under a cap and trade system, the government would set the emissions cap and distribute permits to companies in certain sectors of the economy, allowing them to pollute a set amount. If a company pollutes less than allowed, it could sell its remaining permits to firms that cannot meet their caps.

Richard Sandor is a key architect of cap and trade. He is the Chairman and Chief Executive Officer of the Chicago Climate Exchange, or CCX, where he says American companies have successfully traded carbon emissions rights voluntarily. "Each of the companies takes on a legally binding contract to reduce emissions by six percent by 2010 from the year 2000," says Sandor. "We've gone through four years of operations and the companies actually were required to reduce emissions by four percent, but collectively they've reduced by more than 10 percent."

Sandor adds that the system would be much the same if the U.S. enacted a mandatory cap and that operations like the CCX could serve as carbon trading exchanges. "Right now, we cover about 550-million tons of carbon under our baseline. Under the proposed legislation, we would have something on the order of, in the Lieberman-Warner bill, about six-billion. So the market would expand dramatically," says Sandor.

As in a commodities market, the price of carbon -- traded by the ton -- would be determined by supply and demand. When companies burn more fossil fuels, there would be fewer available permits and the price to pollute would rise.

Stumbling Blocks

But some opponents of cap and trade as embodied in the Lieberman-Warner bill say alternative fuel technologies are not developed enough to accommodate a major shift from high-carbon fuels.

Bill Kovacs is an expert on environment, technology and regulatory affairs at the U.S. Chamber of Commerce that represents three million businesses in all sectors of the economy. "What you have is a reduction in the use of C02 [i.e., carbon dioxide], which really translates into rationing energy, but you have no mechanisms to develop the technology that's needed to provide the replacement fuels or to deploy that technology when it's developed."

Kovacs says that without improved fuel technologies, cap and trade would be a massive tax on companies that would be passed on to consumers who already are struggling with soaring energy costs.

The European Union, or E.U., faced these concerns when it enacted a cap and trade system three years ago. Patrick Birley is the Chief Executive Officer of the European Climate Exchange, the sister company of the Chicago Climate Exchange. He says European firms have learned to adapt to emissions standards.

"Companies within the European Union have accepted the need to have caps in place and start limiting the amount of carbon that they're pumping into the atmosphere. So there's an acceptance there," says Birley. "And once you have that acceptance, people start to look at ways to make the best of the restrictions that are going to be put in place. That's what this business is about. Number one: It's all about the environmental benefits. If we can make money from it, then that's all very well and good."

United Impact?

While the E.U. system binds 27 countries to emission controls, many analysts wonder whether a cap and trade program in the United States would do much to curb global warming because developing countries like China and India continue to pump increasing amounts of greenhouse gases into the atmosphere. Recent studies show that China overtook the United States as the world's biggest emitter of greenhouse gases two years ago.

Bruce Everett is an economist at Tufts University in Massachusetts. "What these countries do believe is that if they don't get several hundred million people out of poverty fairly quickly, they're in trouble as nations. Regardless of what we do, they're not going to compromise economic growth in order to reduce carbon emissions," says Everett.

Environmentalist Mike Tidwell is the Director of the Chesapeake Climate Action Network, a non-profit organization near Washington, D.C. that is dedicated to combating global warming. He acknowledges that developing countries bear increasing responsibility for the world's greenhouse gas pollution. But he says the United States should take the lead before it tells countries like China to reduce their emissions.

"We have no moral authority to tell China to stop polluting the atmosphere until we stop," says Tidwell. "So we have a special historic and moral responsibly in America to go first, to go faster and then, once we begin to substantially start to get off carbon fuels, then we will have the full moral and practical authority to tell China and India to do the same."

Tidwell says urgent action is needed on climate change and that the failed Lieberman-Warner bill did not go far enough. "Warner-Lieberman is insufficient. It is a weak cap and trade program. It doesn't match science in terms of what the world's leading scientists say we need to do on global warming," says Tidwell. "We are going to see a more aggressive bill introduced probably in the fall [i.e., autumn], or certainly by the next president, whoever that may be."

Both major contenders in this year's U.S. presidential race support a federally mandated cap and trade system, although they differ on the details. The presumptive Democratic Party nominee, Barack Obama, is calling for more vigorous emissions cuts than his Republican Party rival, John McCain.

But regardless of who becomes America's next president, many analysts say that White House support to fight climate change could mean that new regulations limiting greenhouse gas emissions may soon become a reality.

This story was first broadcast on the English news program, VOA News Now. For other Focus reports click here.