Cap and Trade Explained In Two Minuets

I’m sure you’ve heard the terms Cap and Trade in the news and probably most recently as saving energy has become even more important. Cap and Trade will be affecting us all and is a subject that you’ll need to be educated on because you’ll see it coming through your legislation in the near future. Cap and Trade is actually quite complex but the following video by Planet 100 does a great job condensing this crucial environmental topic down to the nuts and bolts.

Where Cap and Trade Legislation Is Heading

Current legislation has been in battle for an all encompassing Cap and Trade system and has now been narrowed down to a utility only bill. The logic behind narrowing an all encompassing cap and trade bill down to a utility bill is simple due to the fact that electricity is the biggest emitter for carbon.

U.S. Energy Information Administration

For another, most of the lowest-cost carbon reductions are expected to come from electricity. Here’s how the EIA projects an economy-wide cap-and-trade system would affect various sectors:

via Ezra Klein via Harvard’s Robert Stavins

As you can see, about half the total carbon reduction under an economy-wide cap-and-trade system is expected to come from the utility sector. By contrast, transportation is scarcely affected. The reason for this is simple: It takes an extremely high price on carbon to substantially raise the price of gasoline.

Under the American Power Act, the ceiling on the price of a ton of carbon in 2013 is $25. Even in the unlikely event that the price hits the ceiling, that will boost the price of a gas by just under a quarter per gallon. Given that gas has swung around over a $2-3 range just in the last few years, a quarter isn’t much more than noise. A recent study at Harvard found that in order to reduce carbon emissions in the transportation sector 14 percent from 2005 levels by 2020, gas will need to rise to $7 a gallon by then. Getting there from today’s $4 gas would require a carbon price of well over $300 a ton, and that, in turn, would completely upend the utility sector. So it won’t happen.

In sum: Cap-and-trade was always mostly about the utility sector, so if it becomes explicitly about the utility sector, it’s not a total loss, if a few conditions are met. Read more at Grist

Leave a comment if you have any additional questions or would like some more resources for your own research.