Cap-and-Trade Fails to Cap CO2 Emissions in US

Greenhouse gases (GHG) icon

Posted by Neno Duplan

Last month the US Senate Democratic leaders shelved their effort to cap greenhouse-gas emissions as part of a broad energy bill, postponing indefinitely to transform the way US produces and consumes energy.

The proposal would have allowed utilities to trade permits to pollute as they worked to shift away from coal—a concept commonly called “cap and trade”.

Although the idea may not be completely dead, it is reasonable to assume that cap and trade will not happen in 2010-2011 period. What does it mean for the industry?

However, the US emissions will not go unabated. The industries that opposed action to limit greenhouse-gas emissions still have to reckon with uncertainty over how far the administration may push an effort to do the same thing via the Clean Air Act and the Environmental Protection Agency (EPA).

In 2007 the Supreme Court ruled that the Clean Air Act could be applied to greenhouse gases, and therefore that the EPA should decide whether they posed a danger to public health.  Last year the EPA concluded that they did. It is now working on regulations to mitigate the danger, to be applied to big, stationary sources of emissions such as power plants over the course of next year. The EPA is likely to set minimum standards of energy efficiency and to mandate the use of particular green technologies, among other things.

Using the Clean Air Act is not the cheapest or most effective way to cut emissions. However, officials at the EPA also said that they are prepared to use the law if Congress fails to act.

Many states are also pressing ahead with planned curbs on emissions. Ten northeastern ones have already put a cap-and-trade scheme in place for utilities; several more in the West and Midwest have pledged to follow suit. California is particularly ambitious: under AB32, it aims to pare its emissions back by 85% by 2050.

The Senate’s inaction leaves EPA in charge of setting federal limits on greenhouse gases. EPA has already adopted rules limiting emissions from cars and requiring state regulators to account for such emissions when they issue air-quality permits to large refineries and manufacturing facilities. The EPA is now legally required to act on carbon dioxide. Utilities will be obliged to buy renewable energy and encouraged to build nuclear plants.

The uncertainty over the future of carbon legislation will have a “chilling effect” on investment in the carbon trading software companies in the US, but will benefit those with broad approach to carbon, water, and other environmental information management markets that require deep domain expertise.  Companies trying to develop and sell carbon management and trading software have hoped that caps on greenhouse gas emissions would jump-start demand. Obviously, many will need to rethink their strategy.  These companies will now focus on certain states that have their own clean-energy mandates, such as California, Colorado, and New Jersey.  In November’s elections Californians will vote in a referendum on the repeal of the law, underpinning the state’s planned emissions cuts.  There are also moves in Congress to repeal or defer the EPA’s power to regulate greenhouse gases.

Even if officials around US do promulgate new carbon regulations, those will take some time to come into force, and are bound to be the subject of endless lawsuits. Moreover, such an approach will lead to a patchwork of different rules in different states, to the great expense and annoyance of many firms.  Adding to the confusion and uncertainty will be the chance that a more sweeping federal law might eventually be enacted, if the political winds change once more.  That may leave big energy firms regretting their opposition to cap and trade.

Related Posts

Leave a reply