Global Warming – Cap and Trade?

Last year the legislature instructed the governor to negotiate our entry into the Western Climate Initiative (WCI) and come back with a plan we would have to approve. She has, and now we get to make some very big choices for Washington and the rest of the country. The WCI is a “cap and trade” system, a way of using market forces to control the amount of carbon we emit, and consequently the amount of global warming we create.

A cap and trade system puts a cap on the amount of carbon that can be emitted by creating a set of “allowances.” You can think about these as pollution permits. If you’re going to emit carbon you need a permit for the amount you generate. These permits can be bought and sold, and in a pure system we would auction them off, effectively setting a price for carbon emissions. The polluters who can most cheaply limit their emissions will do so, and will buy relatively few permits. For some companies it will be much more difficult. They’ll buy more permits.

Since half of the carbon emissions in WA come from transportation uses, this will affect all of us individuals too. The permits would have to be purchased by fuel importers, raising the price of gasoline and diesel.

Over time the number of permits would be reduced, causing the price to rise. We may not be able to completely eliminate emissions, but we can take a big whack out of them. The rub here is that the price may rise quite high. This would generate a LOT of revenue for the state, and create huge pressure to spend the revenue on all kinds of things tenuously connected to climate change. I propose sending the money back to taxpayers as a “climate dividend.” We would then be just changing the relative price of things to incorporate the actual costs carbon emmissions cause for the rest of us, but not extracting revenue from the economy.

There are a lot of technical details in designing a system that would actually work. I’m concerned that in trying to do the right thing here we may inadvertently create the biggest transfer of wealth from consumers to polluters in the history of mankind. I will be pushing for a very “pure”
system, and won’t vote for one that looks more like a pork barrel than a climate change proposal.

For more information on this I recommend the overview of cap and trade systems published by Sightline, one of the wonkier thinktanks in WA. I love the work these guys do, and can’t recommend them highly enough.

About the Author

I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.