What Is Cap & Trade: Understanding the Waxman-Markley Climate Bill

They’ve tackled bank bailouts, reforming health care and saving the automakers – the U.S. government’s been busy the last few months.  But what of global warming?  Obama and his team promised to tackle this problem head on.  And so it has begun.  There is a new climate energy bill making its way through the House this week, named after its two sponsors, Henry Waxman (D-Calif.) and Ed Markey (D-Mass.)   The basic premise of this new climate bill is the attempt to reduce greenhouse gases by instituting a cap and trade program

Under this bill, companies and manufacturers will be required to obtain a permit per every ton of carbon dioxide they emit each year.  Each year, the number of permits will be reduced, thus increasing the market value of each permit and gives companies the incentive to install and use renewable energies.  As the more limited supply of permits increases their price, companies can either pay to install cleaner equipment, fund carbon-offset projects, or buy these permits on a secondary market from other companies that have cleaned up their operations and now have extra permits to sell.

The goal here is obviously to put a price on natural capital, or the toll taken on the environment in manufacturing and distribution by way of fossil fuel consumption.  The more expensive it is to use typical energy sources, the more companies will turn to renewable sources like solar, wind, geothermal and water – making them a realistic and competitive alternative.

Though the central feature of the Waxman-Markley bill, the cap and trade program isn’t the only attempt to curb greenhouse gas emissions.  According to the bill’s summary, companies will be required to adhere to increasingly tough standards on energy consumption.

The draft promotes renewable energy by requiring retail electricity suppliers to meet a certain percentage of their load with electricity generated from renewable resources, like wind, biomass, solar, and geothermal . . . [They] begin at 6% in 2012 and gradually rises to 25% in 2025. The governor of any state may choose to meet one fifth of this requirement with energy efficiency measures.

The bill also provides funding to universities, colleges and technical learning centers through the Secretary of Education to prepare students for jobs in “green” fields including renewable energy and sustainable development.  Of course, there are plans for a massive, nationwide smart grid to be implemented, revolutionizing the utility industry and reducing consumption across the board.

This bill is facing opposition in the House, particularly from the Agricultural committee (read more about that here) and even sterner opposition in the Senate.  But being the first bill on climate change from the US government that actually helps mitigate global warming, it needs all of our support.

Posted by: Ashley / follow me on Twitter

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