Did you know that the US already has a cap-and-trade system? Passed as part of the 1990 Clean Air Act by a Democratic Congress and signed into law by George H.W. Bush, the cap on sulfur dioxide (SO2) emissions, which cause acid rain, was first implemented in 1993.

Within two years, according to the Environmental Defense Fund, it achieved 100 percent compliance across concerned industries. By 2002, the cap-and-trade on acid rain-causing SO2 reduced pollution by almost 50 percent. The additional cost to energy consumers amounted to only a fraction of what industry experts and political opponents of the program had projected.

Cap-and-trade is a simple system. The Environmental Protection Agency (EPA)auctions off pollution credits to companies that emit SO2. Those companies are allotted a total amount they can emit in a given time period. If they pollute less in that time period, they can trade the remaining amount available to them to other companies that might be polluting more than is allowed in theirs. Ultimately, the theory is that each company has a financial incentive to invest in technologies that reduce the quantity they pollute.

The funds raised by the EPA during the auction were used to promote research and development in green technologies or in environmental clean-up. This policy led to the rapid emergence of a new ‘green’ job-creating industry. The gradual expansion of the program also limited the impact on the growth of energy prices.

Utility companies, the biggest SO2 emitters, found economic incentives for changing their ways with improved technologies that reduced pollution. Indeed, resources raised through the EPA auctions of the acid rain credits resulted in an explosion of research and development in technologies that control SO2 emissions.

When Congress debated the SO2 cap-and-trade system, the utility industry and the right-wing said it would spark a ‘clean-air recession.’ They claimed, the auction system created a tax on the utility industry that would kill jobs and create unbearable inflation in the energy sector.

Instead, the 1990s are regarded as one of the longest periods of economic growth in US history. The successful reduction in acid-rain causing pollution led The Economist magazine in 2002, in fact, to call the program ‘probably the greatest green success story of the past decade.’

Lessons for today

This week Congress is debating the passage of President Obama’s budget for 2010. As part of that budget, the Obama administration has proposed a cap-and-trade system on carbon emissions, which cause global warming. The plan would be similar to the acid rain plan and would reduce emissions by 80 percent over the next few decades.

Experts like former NASA scientist James Hansen, along with the overwhelming majority of the scientific community, agree that dramatic action to curb carbon emissions is needed immediately to prevent the worst impacts of global climate change, including weather pattern extremes, increases in natural disasters and enormous economic and social problems caused by massive global flooding, heat waves, drought, cold spells and more.

In addition to reductions in carbon emissions, the funds raised from the Obama plan to auction carbon credits would fund investments in ‘green’ job-creating renewable energy sectors such as alternative electricity sources like new batteries, wind power and solar power. Extra funds raised would also finance the ‘Making Work Pay’ tax credit for working families passed in the economic stimulus bill.

As expected, Republican opponents of the plan have raised the same flags raised in the acid rain debate in the 1990s. Republican Sen. James Inhofe, a vocal opponent of the proposal, admitted in no uncertain terms this past month that his opposition stems mainly from his desire to protect the monopoly fossil fuel sectors like Big Oil and the coal industry have on the US energy sector. The economy will collapse, prices will go sky high, and companies will go out of business, Inhofe announced, echoing industry analysts and public relations talking points.

The only point they got right, however, is that a cap-and-trade system on carbon will be complex. It will require a strong regulatory mechanism that helps prevent the Enron scams of the late 1990s and early 2000s as well as the oil speculation mania that pushed up gas prices in 2008. The Obama administration has announced its plan to ensure such a mechanism is put in place.

Deregulation in the energy sector that led to corrupt practices of companies like Enron and speculation-driven spikes in petroleum prices had a far greater impact on energy inflation than the cap-and-trade system could ever have.

Republicans aren’t the only ones in Congress who have tried to halt Obama’s cap-and-trade plan. Some Democrats have also insisted that it not be included in the budget resolution but be worked out separately. Some observers have noted that Democrats who have taken such a position are too closely tied to industry lobbyists or have taken enormous sums in campaign cash form them.

Now, more than ever, is the time to join together to make sure this crucial piece of legislation passes, for the sake of the economy and for the future of humanity.

jwendland @politicalaffairs.net