Carbon Trading 101. It isn't listed in the spring course timetable - yet. In a few years, however, that may be a different story.
In a speech yesterday presented by Penn's Institute for Environmental Studies, adjunct professor Andrew Huemmler discussed what he believes to be the next frontier in U.S. environmental policy: carbon trading.
Carbon trading is essentially a free-market approach to the regulation of greenhouse gases. The underlying economic assumption is that companies able to decrease pollution easily will do so.
Through a "cap and trade" policy similar to that of Europe, the government sets a limit on the amount of pollution that can be emitted. Companies then bid on carbon credits, which give them the right to pollute. Firms exceeding their limit have the option to purchase additional credits from other companies with credits to spare.
Activists worldwide are calling for an 80-percent reduction in carbon emissions by 2050. For this to be possible, Huemmler believes that U.S. emissions must start to decrease by 2012.
"I think one of the answers is clearly cap and trade," proclaimed Huemmler, who predicted that a U.S. carbon market will emerge sometime between 2011 and 2013. "There will be tremendous first-mover advantages," he added.
Although carbon trading is a relatively new topic in the U.S., it has become a growing industry in Europe. In 2005, the European Union instituted a cap and trade policy. This was done to prepare for emissions caps outlined in the 1997 Kyoto Protocol, a treaty the U.S. has not yet ratified.
Addressing the environmentalists in the crowd, Huemmler said, "If you want to get public value out of this market, you have got to become a market player."
Market-based regulation means that emerging energy technologies will soon face the same level of scrutiny as any other product put before Wall Street. Ethanol, for example, will be judged on energy efficiency rather than just political viability.
Still, no matter how powerful the free market, Huemmler believes legislation is needed. He said that enacting an effective cap and trade policy would cost the U.S. around 2-percent of its GDP, yet many see this cost as a necessary expense.
"We must act. There is no later," Huemmler said.
