All Things Considered, May 22, 2009 · Thursday night, a committee in the House of Representatives passed an ambitious climate bill — a big step toward having a law that controls greenhouse gases. At the heart of the bill is a mechanism called cap-and-trade. It's a careful mix of government mandate and free-market economy. How successful it will be is a matter of some debate.
Cap-and-trade is one of those wonky terms that have permeated the world of Washington, D.C. Part of its mystique is that a lot of people don't know what it really means.
It's Like Musical Chairs
Joseph Romm at the Center for American Progress likens cap-and-trade to musical chairs.
"Chairs are carbon dioxide pollution, mostly from the combustion of fossil fuels — coal, oil and natural gas," he says.
Only so many chairs are allowed in the room. The government sets the number. That's the "cap" in cap-and-trade. And to reduce emissions over time, the government gradually takes chairs away.
Now, here's the "trade" part: A chair is a permit, which you need if you want to emit carbon dioxide. If you don't have enough permits, you can buy them from someone who has extras.
Say you're an electric utility. The government has given you a bunch of chairs to start with. You can use them, sell them or hang onto them and use them later.
But remember this: Each year, the federal government will be allowing fewer and fewer chairs in the room. Romm says that's how cap-and-trade reduces carbon dioxide pollution, in a predictable way.
"You know exactly how many chairs there are going to be every year, so no one's going to be surprised and they can plan ahead," Romm says. "And the whole point of doing it this way is to allow utilities and other big polluters to have a certainty about what's going to happen so they can make the transition over time to a clean-energy economy."
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