In a recent press conference, a reporter raised the question of whether a cap and trade program is essential to the new administration's budget proposal. Obama seemed to suggest that the program may indeed be on the chopping block.

After all, the administrations concern is concerned with moving toward energy independence and lowered GHG emissions. The methods are debatable.
 

For the few of you not familiar with cap and trade it is essentially a market, like the stock exchange, that allows emitters of GHG emissions to buy credits from those who emit less. An obvious example is a coal burning power plant buying credits from a wind turbine energy producer. The emissions cap (the level of GHG's allowed to enter the atmosphere) and the credit price are determined by a regulated market (either public or private).

Proponents of this structure are confident that the market can price these credits accordingly, thereby incentivizing polluters to not just cut emissions, but to create revenue from green practices that lessen their carbon footprint. The difficulty is that the pricing must be punitive enough for polluters to look towards lessening GHG emissions while being significant enough revenue for green companies to sell credits.

Likewise, some opponents are adamant that the major polluters who provide electricity and energy, such as coal burning power plants, will be forced to charge higher rates to the average consumer. This price increase would constitute a tax on an all ready "highly taxed" population.

The thing is, a tax for end users has an added benefit of providing an incentive for home owners to lessen their energy consumption, or sell credits themselves, or lobby for clean energy production; all of which constitute a win in my book. Another advantage is cap and trade follows the mechanisms of existing markets (such as the NYSE or Commodities Market) that, for all it's irregularities, works. Furthermore, cap and trade is an interim measure towards the road toward energy independence and a less polluted environment. This is not the answer for the next 100 years, but a way to ease into something that scares polluting companies. It's the carrot and the stick: find ways to lessen GHG emissions and sequester carbon and you can create revenue, if you don't you will pay for the luxury of unrepentant polluting.

Recently Thomas Friedman posted a blog post stating that cap and trade is inferior to a straight carbon tax. His argument is that cap and trade really is a tax, but a complicated one that most Americans don't understand. He cites a recent proposal by Representative John B Larson that is a very simple tax on fossil fuels. Rather elegant and simple indeed. My complaint is two fold: The first is that he system is not market driven and thereforeinflexible to changes in real world circumstance. The second is that it is merely a stick and has no carrot. It deals with the fossil fuel issue, but doesn't take into account the other creative ways companies can lessen there carbon footprint. Nor does it reward companies that are all ready environmentally conscious.

Let me know your thoughts. Cap and Trade? Tax polluters? Do nothing?