Although supporters say the policy will help fight global warming, some contend that cap-and-trade legislation could provide a dangerous new commodities market and higher energy costs for businesses.
While much of the debate in Washington lately has centered around health-care reform, some business groups remain concerned about cap and trade, which they say could place an unnecessary burden on U.S. companies.
A system like the one included in the American Clean Energy and Security Act passed by the House in June would regulate the total amount of carbon emissions allowed from U.s. companies by setting an overall cap and issuing permits that companies would then be allowed to buy and sell among one another, which supporters say would help combat climate change.
Some fear, however, that the system would lead to higher energy bills, particularly for small businesses. In a letter to Congress, the National Federation of Independent Business, a small-business advocacy group, asserted its opposition to cap-and-trade. "A major change in the business environment -- such as increased energy costs -- could have an especially negative impact on small business," senior vice president Susan Eckerly wrote in the letter. "The cap and trade proposal has the potential to cripple economic growth."
Businesses that produce less than 25,000 metric tons per year (or the equivalent of driving 28,000,000 miles in a car that gets less than 20 miles per gallon, according to nature.org) however, would not be regulated under the legislation, and therefore not subject to the potentially negative impacts cited by those opposed to cap-and-trade, says Tony Kreindler, a spokesman for the Environmental Defense Fund. In order to avoid skyrocketing utility bills for small businesses and households, most of the permits will initially be distributed for free. By 2050, three-quarters of the permits will be auctioned off. "The bill is designed to ensure that electricity rates stay low," Kreindler says. "Thirty-five to 40 percent of the permits under the cap will go to electricity and natural gas distributers, those local distribution companies are required to pass on the value of those permits onto end-use energy consumers, being households and small businesses. The price effects will be very minimal."
With the nation still reeling from the burst of housing bubble, which was fueled in large part by the subprime mortgage market, the commodities market that would be created by carbon credits is also something to worry about, according to David Ridenour, vice president of the National Center for Public Policy Research. "Not only would cap-and-trade drive up the costs of energy, but it has the potential to create a dangerous new commodities bubble."
The trade portion of cap-and-trade, according to the Environmental Defense Fund, is essential because it allows for shared responsibility between government and business sectors. "The market allows you to give responsibility to the private sector for investing in and harnessing all of the innovation and entrepreneurship out there to come up with the cheapest way of reducing emissions," Kreindler says.
The legislation is now under discussion in the Senate, where Majority Leader Harry Reid (D-NV) has given committees a September 28 deadline.