US Cap-and-Trade Implications for Business

Small business has more to fear from unchecked CO2 emissions than itdoes from cap-and-trade. If proposed climate change legislation cangain the support of lawmakers, cap-and-trade will help businesses makethe transition to a low carbon economy.

The American CleanEnergy and Security Act, aka the Waxman-Markey Bill (HR 2454), promisesa cap-and-trade system that will reduce U.S. carbon emissions 17percent by 2020 and 83 percent by 2050, compared to 2005 levels.

TheU.S. House of Representatives is about to vote on climate changelegislation and the Senate is expected to act as early as the end ofthe summer. There are many who disagree with the proposed cap-and-tradeand opponents are seeking amendments that could severely undermine thebill’s ability to reduce America’s CO2 emissions.

Republican’sand some Democrats have expressed concerns about increased energycosts. Some lawmakers are insistent that nations like China share theburden of CO2 reduction. The Chinese and other developing nations haveresponded by pointing out the hypocrisy of industrialized countrieswhose emissions are largely responsible for current levels of CO2.

Someon the Capitol Hill dismiss the current legislation and prefer astraight forward carbon tax. However there are advantages tocap-and-trade that cannot be achieved by a simple tax. Cap-and-tradetakes advantage of the efficiency of free markets and thereby offersthe most expedient system of carbon reduction.

In addition toplacing a price on carbon which would benefit low-carbon businesses,the legislation would increase energy efficiency standards, establishnational mandates for renewable energy, and boost clean energyresearch. It would also raise capital to offset the increased costs forvital energy intensive industries.

According to the bill as itnow stands industrial polluters, defined as businesses that emit morethan 25,000 tons of carbon per year (large electric utilities, naturalgas distributors, cement producers etc) would receive about 80 percentof the cap-and-trade system’s emission permits for free.

Theremaining permits would be sold at auction and these funds would helpto manage higher energy costs, reduce deforestation in tropicalcountries, increase research and development of clean-energytechnologies and assist developing countries to reduce their emissions.Half of one percent of the funds raised by auctioning CO2 will go toworker assistance and low CO2 job training programs. Commercialbuildings will also be eligible for financial support forweatherization programs.

The lines are drawn and the positionsof many of the players are well known, all except for small business.However as reviewed above the cap-and-trade legislation being discussedin the US does not warrant small business’ silence. Further if thisbill does not become law, future efforts to reign in CO2 will have tobe much more aggressive and this could mean stringent regulation forsmall businesses producing less than 25,000 tons of carbon emissionsannually. If it can overcome its fear and break its silence, the smallbusiness community can dramatically improve the legislation’s chances.

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