U.S. policy towards controlling greenhouse gases (GHGs) has relied largely on voluntary actions to achieve its objectives. In 2002, President Bush announced a goal of decreasing the GHG intensity of national output (GHGs/GDP) by 18 percent over ten years, by 2012. Public/private partnerships, spending on research, development and deployment, and international agreements such as the Asia-Pacific Partnership on Clean Development and Climate have been principal tools in mplementing this policy. Through 2006, the U.S. is ahead of schedule, having reduced the GHG intensity of its output over the past four years by almost 11 percent.
As concern over climate change has increased, however, a number of proposals have emerged in Congress and elsewhere that would compel more rapid reductions in GHGs. Most of these take the form of Cap & Trade (C&T), in which a fixed number of allowances to emit GHGs would be distributed annually by the government, and recipients allowed to trade them with one another. Many environmental organizations support the approach. A number of businesses also support it and for now it is the main policy approach to reduce GHGs under discussion within the U.S. Congress.
This paper argues that implementation of a GHG C&T system in the U.S. would be a serious policy mistake. Our conclusion is based on the following observations.
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