PRESIDENT OBAMA’S inauguration should revive environmental initiatives. One of the most important is “cap and trade,” a market-based system designed to cut emissions of greenhouse gasses, particularly carbon dioxide. Backers have come out in support of cap-and-trade legislation. Investors soon will hear a lot more about it. Also look for new proposals to emerge in the Senate.
Cap and trade has strong support within the new administration. Obama was on the board of the Joyce Foundation in Chicago when it helped fund the Chicago Climate Exchange CCX (owned by Climate Exchange, ticker: CLE.UK), which runs a voluntary cap-and-trade program and trades carbon futures. The Environmental Protection Agency’s new director, Lisa Jackson, was New Jersey’s representative on the Regional Greenhouse Gas Initiative, or Reggie, a promising cap-and-trade program for 10 Middle Atlantic and northeastern states.
The CCX has attracted about 400 entities – Monsanto, IBM, Intel (INTC), the city of Chicago to sign on to a voluntary program that mandates an emissions cap.
At least three regional U.S. groups are in various stages of development:
- Regional Greenhouse Gas Initiative – Reggie
- Western Climate Initiative (2012)
- Midwestern Greenhouse Gas Reduction Accord (2012)
A mandatory cap-and-trade program is in its fourth year in Europe. Trading volume there doubled last year, and prices hitting $43 a ton at one point before sliding to $13 recently.
A state program works so that the government sets the ground rules and oversees compliance. Emission quotas for companies can be set by a government agency or entities authorized to do so.
Obama would like to see emissions at 1990 levels (about 15% below current levels) by 2020 and then, by 2050, fall to 80% below the 1990 levels. Unlike Reggie, the federal program would target many industries.
Proponents say that the use of emission-reduction credits will cut overall air pollution, rather than merely shift it around. Private exchanges are established for buying and selling quotas. Sellers and buyers in the form of companies trade here.
Sellers are companies that operate under their caps for CO2 emissions can sell surplus reductions and credits to those that don´t.
Buyers are companies that cannot meet their CO2 reduction targets must buy emission reduction credits from others. These can be in the form of emission reductions and offset credits.
Offset projects: Companies can create offset credits by planting trees, using carbon storage or employing carbon reducing technology.
(Barrons)
Tags: USA