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Explaining Cap and Trade
Nobel Prize winner Paul Krugman (Image source: Wikimedia Commons)
There is something about political and economic jargon that causes the eyes to glaze over and the brain to tune out. Accurate, comprehensive explanations come too late and are either too complex or simply too removed from most people’s experiences and day-to-day lives to make sense for them. This may be a fundamental problem of democracy, of which populist politicians take full and unscrupulous advantage. Maybe I’m being overly cynical, but it’s plain to me that nuance and accuracy do not sell to the general public and this can result some incompetent and dangerous people in positions of power. And I don’t really have to give any examples of that now, do I?
Suffice it to say that popular politics and the selling of political action to the masses resemble commercial advertising, with all its slogans and buzzwords. Except politics uses the negative. Let’s look at the estate or inheritance tax, where large cash legacies are taxed: the more the inheritance the higher the rate of taxation. Conservatives successfully rebranded this as the ‘death tax’. Similarly, in a recent editorial in the Wall Street Journal, ‘cap and trade’ – the limiting and ‘trading’ of greenhouse gas emissions – was transformed into “Cap and Tax”. And while Americans might like the word trade, they don’t like the word tax.
That’s why I’m glad Nobel Prize winning economist and New York Times columnist Paul Krugman has written an opinion piece in last Sunday’s edition explaining cap and trade in basic economic terms. I’ll admit, it may still not be that easy to grasp, but he doesn’t sloganize or over simplify and he gives a good economic argument for the American Clean Energy and Security Act, aka the Waxman-Markey Bill, America’s first version of cap and trade.
For those who can’t take Paul Krugman’s clarification, here is the shortest and most basic explanation of cap and trade by that bastion of American conservationism, the Sierra Club.
Here we have an equally supportive and slightly more nuanced version from the Center for American Progress.
Still skeptical, confused… angry even? Here is my breakdown of cap and trade in as few words as possible: Cap = limits on greenhouse gas emissions. If an emitter goes over the cap, they pay. Trade = money. Since emissions over the limit now have a price, they can be used as currency, which is designed to benefit the consumer by offsetting other taxes and keeping public utility prices low.
Europe has already successfully instituted their own cap and trade policy called the European Union Emission Trading System or EU ETS, which has been operating since 2005. Though far from perfect, the EU has reduced its overall emissions and is confident that it will meet its Kyoto goals. Though Europe and the U.S. still need to do much to curb and reduce emissions, cap and trade is at least a start. Once implemented, cap and trade will be the most by far that the U.S. government has done in the fight against climate change. Let’s hope it does not get buried or ignored in the political battle over the United States’ health care system, which has just as much opposition from conservatives and business interests as cap and trade does.
By Graham Land
Additional resources:
Cap and trade according the United States Environmental Protection Agency
Tags: cap and trade, Climate change, co2, Paul Krugman, tax
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