The “Cap and Trade” Approach To Reducing Carbon Dioxide Emissions- Economic Growth and Environmental Benefits

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Last week California legislators passed the California Global Warming Solutions Act, requiring industrial producers of greenhouse gases to reduce emissions 25% by 2020.  This is achieved by setting a "cap" on emissions and allowing companies that pollute less to sell or "trade" emissions credits to other companies, who buy them to offset their excess carbon.  This marks a momentous occasion on the march towards a sustainable economy as it encourages and sets the groundwork for a free market approach to cutting carbon-emissions, which has far reaching applications.  As John Doerr explains in his recent piece in TIME ,

"That "cap-and-trade" approach works because it provides certainty–companies have a specific greenhouse-gas-emission target–and because free markets are the most efficient way to reward innovation. A market-based system has two added benefits: it creates new revenue sources for companies clean enough to sell credits, and it enables free markets to determine the best solutions instead of having governments bet on what they think are going to be the winning innovations."

The Climate Action Team determined that global-warming reduction would increase income by more than $4 billion while providing 83,000 new jobs.  Doerr believes that this "growth will come from several sources: innovative green technologies will create high-quality jobs and new revenue streams. In addition, companies will have increased purchasing power once they decrease energy costs and reduce imports of fossil fuels."

The opportunities that this legislation may create do not come without concerns.  Many fear that business firms will leave California as a result of perceived higher regulatory costs and relocate their factories to areas with more lenient policies towards greenhouse emissions.  As Allan Zaremberg, President of the California Chamber of Commerce, recently told The New York Times,

"If our manufacturers leave, whether for North Carolina or China, and take their greenhouse gases with them, we might not have solved the problem but exacerbated it instead."

Doerr believes that notion that businesses will leave the state is flawed because all suppliers that sell to California are affected, not only California-based suppliers.  This is further strengthened by the fact that many businesses have sprouted up and found success over recent years answering the growing demand for companies looking to offset their carbon emissions to create cleaner corporate images.  Companies such as The CarbonNeutral Company offer clients the opportunity to off-set their emissions through investments in renewable energy, energy efficiency or forestry projects equal in value to the amount of gas emitted.  Companies such as Whole Foods, The Economist, and others have jumped on board and rallied under a new "corporate consciousness", understanding that consumers are holding companies accountable for their impact on the environment. 

As California is home to 1 and 8 Americans, this legislation will have an impact on the U.S. economy and will serve as a template for other states to follow moving forward.

Thank you Josh for your tip!  We appreciate your addition to the Inspired Economy. 

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