Claim Your Piece of the Sky—It's Going Fast

There's a right way and a wrong way to do "cap and trade." You'll feel the difference in the air—and in your wallet.


Photo by Davis Ayer
Photo by Davis Ayer

The atmosphere is different from private property—all living beings share it, which makes it a commons. But that doesn’t stop corporations from trying to privatize it by persuading Congress to grant them free pollution rights in the future, becoming, in effect, landlords of our common sky.

Who should own the sky? Polluting corporations? The government? Or all of us as co-owners? How we answer this question will determine the kind of carbon capping system we have.

The Right Price for Carbon

From a climate perspective, we want carbon prices to be as high as possible: the higher the carbon price, the less dirty coal we’ll burn, and the more we’ll invest in clean alternatives like wind and solar power.

At present, the price of emitting carbon is zero. The right price of carbon is the price that maintains climate stability. Capping carbon (without allowing offsets) will move us toward that price.

How Carbon Capping Works
If done right, a descending economy-wide carbon cap is the single best tool to fight climate change.
If done wrong, a cap won't reduce emissions sufficiently and will transfer hundreds of billions of dollars from families to corporate polluters.
The right way
  • Cover all carbon as it enters the economy
  • Sell permits rather than giving them away free
  • Allow no offsets
  • Rebate permit revenue to individuals in the form of dividends
The wrong way
  • Exempt sectors or industries
  • Give polluters free permits
  • Put the burden of higher energy costs on families

A carbon cap functions through the issuance of permits, the number of which is reduced each year. As the number of carbon permits falls, their price rises, and this spurs investment in clean alternatives.

Carbon permits can be traded, giving businesses flexibility in reducing emissions. To simplify the capping process, carbon would be capped where it enters the economy, not where it enters the atmosphere. This could be easily administered because only a few hundred companies bring fossil fuels into the U.S. or “produce” it here. Imports of products from countries with low carbon prices would face border fees, which would financially protect climate-friendly manufacturers and workers.

This falling carbon cap is the best way to guarantee a pre-determined decrease in carbon emissions by a pre-determined date. That’s because it’s an absolute limit on emissions, rather than just an incentive or a regulation.

The idea of pollutant cap and trade got its first major test with the Clean Air Act of 1990, which cut sulfur-dioxide emissions and is widely considered a success.

In 2005, the European Union was less successful when it applied the sulfur model to carbon. Big companies used their political clout to get free permits, which led to huge windfalls for them, and higher prices for everyone else, and no reduction in carbon emissions.

Europe’s experience shows that capping carbon can generate large private windfalls or equally large public revenues, depending on how it is set up.

How to Cap Carbon

Carbon capping comes in three varieties: In cap-and-giveaway, permits are given free to historic polluters, leading to high windfalls for these companies. In cap-and-auction, permits are sold to polluters, and the government collects the revenue. In cap-and-dividend, permits are also sold, but the income doesn’t go to the government—it goes to all of us equally. This would be similar to the Alaska Permanent Fund, which draws from an investment fund built with state oil income to pay all Alaskans equal yearly dividends.

The cap-and-dividend system reduces carbon emissions while protecting household incomes. The system works by auctioning permits and returning the revenue to all residents equally. Since everyone gets the same amount back, you gain if you conserve and lose if you guzzle. The winners are thus everyone who conserves fossil fuel—plus our children who inherit a stable climate.

Peter Barnes contributed this article to Stop Global Warming Cold, the Spring 2008 issue of YES! Magazine. Peter is a writer, senior fellow at the Tomales Bay Institute, and former president of Working Assets Long Distance. This article was excerpted from Climate Solutions: A Citizen’s Guide (Chelsea Green, 2008). Photo of Peter Barnes
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