Cap-and-Trade, Meet Forest Carbon…

A recent Rasmussen poll of American’s revealed a statistic which is somewhat astounding to the Sierra Business Council:  Only 24% of American’s can correctly relate cap-and-trade legislation to environmental issues. Cap-and-trade proposals are currently on the table as a solution to our climate change and global warming woes.  This legislation would set limits on which pollutants are emitted into our atmosphere, and the allowable quantity of their emissions.  As consumers, we support activities which contribute to an unlimited amount of greenhouse gases being released into the atmosphere, with no fiscal consequence to us or the entities responsible.  Instead, our environment bares the consequences of our actions, with more severe droughts, floods, and fires causing disaster and extinction.  But not only does our environment suffer, we suffer.  A recent report from the Global Humanitarian Forum revealed that 300,000 people are suffering from this “silent crisis”, and these numbers are expected to rise to 500,000 by 2030.

Policy makers are considering several options for putting a cost on greenhouse gas pollution in an attempt to stabilize global warming.  Americans appear to shy away from the idea of enforcing a carbon tax, whereby polluters are taxed for their emissions, but also have little understanding of the market-based alternative of implementing a cap-and-trade program.

Cap-and-trade would designate a government authority the ability to establish a limit to the total amount of pollution allowed, and distribute permits for a “right to pollute” the atmosphere, which can be traded as private property.  The number of “right to pollute” permits would decline each year, increasing demand for the carbon permit commodity. Think of it as a game of musical chairs. Once a cap on emissions is established, only so many ‘permits to pollute’ (chairs) will be available and entities responsible for polluting our atmosphere must compete for an available chair.  Those entities who found a chair will be offered money for their chair from those who didn’t.  Faced with high enough offers, chair-holders will have an incentive to reduce their emissions below the cap so that they can sell their extra permits to those without a chair.  Those entities without a chair will have to reduce their emissions, or pay a high enough price to buy their chair from other players.  These trades will establish a market price for the chair, or in other words, the right to pollute.  At that price, players will determine the most profitable course of action based on the cost of reducing emissions (by investing in new technology or altering processes) relative to the price they could command if they chose to sell their permits.  These opportunities will drive innovation and investment, both greatly needed in the race to stabilize climate change.

This idea of capping emissions, and providing a set limit of allowances could end up financially benefiting the conservation of forested lands in the Sierra Nevada.  In such a market, entities would also have the option of offsetting their emissions.  These offsets would act as an extra chair brought to the room.  Forest projects face obstacles of maintaining permanence, forward selling emission reductions, leakage, and additionality issues, among others.  But such projects, when developed with credible protocol guidelines, provide significant climate, community, and biodiversity co-benefits while promoting both the storage and continued sequestration of forest carbon.  Internationally, deforestation is a major concern, and is responsible for about 20% of the world’s greenhouse gas emissions.  By encouraging the inclusion of forest carbon offsets in cap-and-trade legislation, we are getting the most “bang for our buck”, so to speak.

If entities purchase offsets from forest projects which promote resilient and intact forests, should they be included as ‘permits to pollute’ in the compliance market?

Watch this video by the Ecogeek called “What is Cap and Trade” to learn more about this market-driven approach to pollution reduction.