Obama endorses cap-and-trade; “A cap-and-trade program draws on the power of the marketplace to reduce emissions in a cost-effective and flexible manner”

US Presidential Candidate Sen. Barack Obama (D-Ill.) has released his energy policy, which called for a cap-and-trade emissions policy and investment of $150 billion in new alternative energy technologies. Senator Obama proposed a 80% greenhouse gas emission reduction target for 2050.

In his policy statement, Sen. Obama said that “A cap-and-trade program draws on the power of the marketplace to reduce emissions in a cost-effective and flexible manner. Companies are free to buy and sell allowances in order to continue operating in the most profitable manner available to them. Those that are able to reduce pollution at a low cost can sell their extra allowances to companies facing high costs. Each year the number of allowances will decline to match the required annual reduction targets.”

“It’s sound policy and it will work,” said Tina Reine, VP, Carbon Markets at JPMorgan Chase. “Definitely we think that cap-and-trade will happen. It’s anyone’s guess exactly when, but we hope we will see it in a 2-3 year time frame.”

In emissions trading (or cap-and-trade) a government agency establishes a cap on the amount of a pollutant that can be emitted. Companies that go over their alloted emission of that pollutant must buy emission credits from companies that are under their allotment. In theory, the more that companies need to exceed their allotted emissions, the more demand for credits, which causes credits to increase in value.

“There has been success with cap-and-trade in other markets,” said Reine. “Of course, there will be kinks to work out, but having a cost for carbon will stimulate new thinking and new technologies. It will allow those who reduce their emissions to monitize their cuts, and sell them to those who have not yet made those reductions.”

Sen. Obama is the only Democratic candidate to advocate the cap-and-trade system, which was also a feature of the Kyoto Treaty which the United States did not ratify.

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