Over the past few years, and specifically during our last Presidential election, I found that the United States finally started to seriously discuss the effect we’ve been making on the world’s climate. For most of my life the United States has generated more carbon emissions than any other country, and only recently have we begun to take accountability for this. Whether you agree that global climate change is occurring, the basis for the change and positive effects of a carbon market are undeniable.
Most of us have at least heard the term “Cap and Trade”, even if we don’t know what it means. Basically, in a “Cap and Trade” scenario, carbon emitters are given limits to the amount of carbon (green house gasses, or GHG) they can emit during a specified amount of time. Those who emit less GHG than expected receive “credits” which can be sold. Those who emit more GHG than they are allowed must buy credits from someone who emitted less than expected in order to offset their emissions.
You may ask, “Is this not ridiculous? If I emitted GHG, no amount of paperwork will change the fact that I actually emitted GHG!” Actually, it does make a difference. What must be considered is that in a global climate it ultimately doesn’t matter who is emitting GHG. What matters is that all the inhabitants of this planet must breathe the same air, we must all drink from the same water sources and we are equally affected by the world’s weather. The GHG, regardless of their source, affect us all. Therefore, the ultimate goal is to decrease our total GHG output over time in an effort to make a difference to the climate on a global scale. The “Cap and Trade” construct allows us to start moving toward that goal in a realistic timeframe.
The upside, which isn’t really discussed in this market, can be discovered in what happens in the background and is easily missed on a financial sheet. Let me give you an example.
A farmer has 10,000 pigs on his farm at any given time. His pigs’ effluent (waste) is pumped into an open lagoon. Naturally, this open lagoon oozes the raw, rotting stench of pig manure and methane and carbon dioxide (two of several GHG) into the air. The decomposition has the added benefit of causing bacteria and potential hazards such as disease to spread to surrounding areas. The farmer’s neighbors aren’t thrilled with this; but hey, he’s making money selling pork! In a “Cap and Trade” scenario there happens to be a benefit to capturing the methane and carbon dioxide that is seeping into the atmosphere at this farm. The lagoon can be enclosed. The methane and carbon dioxide from the lagoon can be burned clean and/or provide clean, free gas to run electrical generators. Being ultra-conservative and assuming the farmer only lowers his carbon emissions by 50%, we can safely assume he’ll make a profit from selling his carbon credits on the carbon market.
Now, let’s discuss the hidden benefits.
1. The lagoon is now enclosed. The potential hazards and smells of an open lagoon have been decreased substantially.
2. Less GHG are being released into the atmosphere than before.
3. The farmer can potentially power his entire farm and/or sell power to his local power company from the power he is generating.
4. The farmer’s neighbors are happier now that the air doesn’t have that awful stench anymore.
Believe it or not, this is an actual real world example. There are currently thousands of sites in Mexico and Brazil that implement this. The amount of GHG in these two countries has been decreased dramatically over the past few years. If nothing else, the worst thing that comes out of a system such as this is a cleaner world.
In the end, it’s obviously your decision whether or not to get behind the “Cap and Trade” policy that is becoming increasingly more popular in the United States. However; before exiling it and writing it off as flawed, you should try to understand the benefits. In my opinion, the benefits outweigh any negative impact it could possibly have.