Create cap and trade system with interim goals to reduce global warming

Cap-and-trade is in the budget

Updated: Tuesday, March 3rd, 2009 | By Angie Drobnic Holan

Barack Obama said during the campaign he would attack global warming by setting up a cap-and-trade system.

The idea behind cap-and-trade is that the government sets a limit on how much carbon different companies, such as electric utilities or manufacturers, can emit (the cap). The government then issues permits to companies and allows them to buy and sell the permits as needed so they can conduct business (the trade). If the policy works as planned, overall emissions decline, companies determine for themselves the best way to lower emissions, and the free market rewards those who lower emissions most effectively.

When President Obama released his budget on Feb. 26, 2009, he included the cap-and-trade system as part of his plans. The initiative would reduce greenhouse gas emissions, compared with 2005 levels, by about 14 percent by 2020 and 83 percent by 2050.

The policy would result in "dramatically reduced acid rain at much lower costs than the traditional government regulations and mandates of the past," said Obama's budget outline.

Obama also hopes the program will generate revenues for the government of about $150 billion over 10 years, starting in 2012. That money will go to paying for some of Obama's other initiatives, including helping communities transition to a green economy, according to the budget outline.

Republicans say the cap-and-trade system will result in higher electricity rates and higher prices for consumers. Those increases are a de facto energy tax, they argue.

Obama's budget director, Peter Orszag, said electricity costs may go up but most Americans would see other benefits to offset the higher costs.

"I just reject the theory that the only thing that drives economic performance is the marginal tax rate on wealthy Americans and the only way of being promarket is to funnel billions and billions of dollars of subsidies to corporations," Orszag said in an interview.

So cap-and-trade is in the budget outline. Orszag's remarks signal that the Obama administration intends to aggressively defend the plan in the face of opposition. We move this promise to In the Works.

Sources:

Office of Budget and Management, Budget Documents for Fiscal Year 2010 , accessed Feb. 26, 2009

This Week with George Stephanopolous, Interview with Peter Orszag , March 1, 2009