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The Promise of Cap and Trade

Recognizing the danger presented by climate change, beginning in the early 1990s European nations developed policies aimed at curbing carbon emissions, with the first cap-and-trade system taking effect in the European Union in 2005. But in the United States, the world's second-largest carbon polluter behind China, calls for a carbon or energy tax have been fiercely opposed. The fossil fuel-burning companies that contribute the majority of U.S. human-generated carbon emissions, along with the nation's coal and oil producers, have formed one of the most powerful political lobbying blocks in Washington. Addressing climate change has become all the more contentious with increasing partisanship in Congress, with Democrats generally supporting climate action and Republicans making resistance a central tenet of their party's ideology.

The idea of a market-based emissions cap is itself nothing new in the United States. The model first gained currency in environmental policy circles in the 1980s, when it was implemented to phase out lead in gasoline in lieu of “command and control” approaches, such as having the Environmental Protection Agency (EPA) mandate the reductions itself. In 1990, President George H. W. Bush made good on a campaign promise to swingstate environmentalists to pass amendments to the Clean Air Act that significantly reduced sulfur dioxide emissions from coal-fired power plants— thereby curbing acid rain, which had been a growing problem in the United States and Canada.

In the years leading up to USCAP, green groups such as EDF, which was pivotal in helping draft the acid rain legislation, advocated for a cap-andtrade model to curb greenhouse gas emissions both domestically and on the international level. Regional cap-and-trade programs for climate change mitigation were successfully proposed in northeastern states in 2003 and in California in 2006. In the two years before Obama's election, no fewer than 10 pieces of federal economy-wide carbon cap-and-trade legislation were presented in the House and Senate.

The benefit of cap and trade for climate policy, according to its proponents, was that it was an attractive model for all stakeholders. The green groups liked that it placed an actual cap on carbon, something that had never been done before. The corporations liked that it created a single market-based policy that would trump EPA regulation of greenhouse gases—bureaucratic oversight that was subject to change from administration to administration—and preempt states from implementing their own carbon policies. Republican leaders whom the USCAP coalition hoped to sway to its side could vote for it because it was, in its purest form, a market-based solution.

Most importantly, cap and trade did not appear to be a tax, something that the green groups had long regarded as a nonstarter in gaining the support of lawmakers. This was a lesson learned painfully through the failure of a 1993 energy tax—known as the “Btu tax” after the British thermal unit, the measure of energy it proposed to regulate—which was met with such hostility that while it passed the House it was considered a factor in the defeat of 28 of its Democratic champions in the 1994 elections.

In January 2009, five days before Obama's inauguration, USCAP issued a blueprint for action, calling for a cap-and-trade system with up to an 80 percent reduction in 2005 U.S. greenhouse gas emissions by 2050. (As ambitious as the plan seemed, the proposed reduction goal still fell short of scientists' recommendations for averting catastrophic climate change.) Agreeing on even the most top-level points—how stringent the cap should be and who would receive the bulk of the pollution allowances—had required thousands of hours of negotiations. Despite the historic nature of the coalition, reaction to the blueprint was critical, especially from groups like the nation's leading wind and solar companies, which were never invited to the table. “When you look at the companies that were in USCAP, they were not interested in regulating carbon,” said Jigar Shah, founder of solar services company SunEdison. “They were interested in a huge amount of wealth being transferred to their companies in exchange for their vote on climate change.”

Many in the environmental community also expressed doubts.“The time to negotiate with industry is when you've had major successes beating industry back and you're holding really strong hammers,” said Kierán Suckling, executive director of the Center for Biological Diversity. “These folks sat down with industry when they weren't threatened.”

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