Cap-and-trade legislation in Congress has come under fire from both left and right. Some on the left claim that the distribution of free emissions allowances to industry amounts to a “free ride.” Meanwhile, many on the right slam the bill as a job and economy killer.
But a new study (PDF) by PointCarbon Research, a carbon market research firm, rebuts both sides’ claims. The study focuses on the impact that climate change legislation would have on the largest emitters in the power and oil industries, which represent about 40 percent of the covered emissions in the U.S.
Contrary to right-wing forecasts of widespread economic collapse, PointCarbon found that a cap-and-trade market would, in fact, yield winners and losers among industry players. “Some companies will actually be considerably better off with a U.S. cap-and-trade program than without,” the study found, noting that companies like Exelon (the largest American utility), FirstEnergy, NRG, and PG&E stand to gain the most. Firms with a diversified fleet of non-emitting (hydro, nuclear, and renewables) and low-emitting plants are more competitively positioned and will likely see benefits.
Meanwhile, firms that rely heavily on high-emissions plants (Southern Co., AEP, Duke) would see the biggest exposure. That finding debunks the idea that industry receiving free allowances would be getting a “free ride” under cap-and-trade. As the study points out, “in reality the bulk of free allowances destined for [the power] sector will not help large power companies exposed on the generation side.”
But even as some firms do see more of a negative impact on the bottom line, the study notes that as the carbon market matures, “companies will be able to mitigate their exposure through internal reductions and offset investments” – meaning that the incentive to innovate and modernize that a carbon price brings will eventually help these companies adjust to the new low-emissions economy.
The study raises a fundamental point: “[P]utting a cost on emissions means giving a value to reductions.” In other words, a price on carbon will mean a cost burden to some – but a revenue opportunity for others. Letting actors compete in this new market is the most efficient and effective way to address the looming climate crisis. That is precisely what the Senate cap-and-trade legislation hopes to achieve.
