Waxman-Markey/American Power Act Cap And Trade - All Pain And No Gain?
The justification for cap and trade, centerpiece of both Waxman-Markey and the American Power Act, is that placing a price on carbon emissions makes solar, wind, and other sources of alternative energy cost-competitive with fossil fuels. However, as James Kanter of the New York Times reports, the EU's experience with carbon trading suggests that carbon must be priced at approximately $76 per ton to make alternative energy economically viable. He writes:
Each permit, representing a ton of carbon, currently costs around $19, but most experts agree that permits need to cost around four times as much to make them cost-effective enough to build cleaner systems, like offshore wind farms and solar power plants.
To minimize economic dislocation, Waxman-Markey prices carbon emissions using a "soft collar" of $28 per ton going to 60% above three-year-average market price. The American Power Act prices carbon emissions using a “hard” collar between $12 and $25 per ton, floor increases at 3%+CPI, ceiling at 5%+CPI, plus permit reserve auctions. Yet, if Kanter's reporting is correct, then neither Bill prices carbon anywhere near the level needed to make solar and wind cost-competitive. The result? The worst of both worlds, it seems. Big economic pain without any environmental gain.
