Voter Guide: GHG Cap and Trade as Primary Method of Reducing GHG Emissions

Both Sen. Obama and Sen. McCain support a mandatory, economy-wide GHG cap-and-trade program as a primary tool for reducing U.S. GHG emissions. In a cap-and-trade system, the government sets a declining annual cap on total GHG emissions, requires facilities that emit GHGs to acquire one "allowance" for each ton of their emissions, and allows the facilities to buy and sell allowances from each other or from the government (e.g., at an auction). In this way, while government establishes the environmental objective, industry, through the marketplace, decides the most cost effective way to achieve it.

Sen. McCain’s proposal for a cap-and-trade program incorporates several details drawn from the cap-and-trade bills he co-authored with Sen. Joseph I. Lieberman (ID-CT) in the Senate in 2003 [1], 2005 [2], and 2007 [3].  Sen. Obama cosponsored the 2005 and 2007 McCain-Lieberman bills, but has taken different positions on two aspects of a cap-and-trade program: the pace of GHG reductions and the method of initially distributing GHG allowances.

As GHGs accumulate in the atmosphere, they adversely affect the climate for decades. Unfortunately, the United States’ annual GHG emissions have been rising steadily – they were 14.7% higher in 2006 than they were in 1990.  Sen. McCain’s plan calls for limiting U.S. GHG emissions at the 2005 levels by 2012; at 1990 levels in 2020 (15% below 2005 levels); and at 22% below 1990 levels in 2030 (34% below 2005 levels).

Sen. Obama has not specified short- and mid-term goals, but materials on his campaign’s web site state that he “will start reducing emissions immediately in his administration by establishing strong annual reduction targets.”

In the longer term, Sen. Obama has called for an 80% reduction of U.S. GHG emissions below 1990 levels by 2050, while Sen. McCain’s plan calls for a 60% reduction below 1990 levels by 2050.

Initial allowance distribution is among the most contentious elements in the design of a cap-and-trade program.  While allowance distribution does not affect the environmental integrity of the program (the quantity of GHGs emitted is determined by the cap levels mentioned above), it does have several other important policy implications.  Under a cap-and-trade program, there are several methods by which allowances could be initially put into the market.  Among other things, allowances could be: given for free to emitting facilities or manufacturers facing higher energy costs to assist the transition to low-carbon energy sources; auctioned to raise revenue for a variety of purposes, including protecting low-income consumers from higher energy costs, aiding the transition of workers, subsidizing the development and deployment of low-carbon energy technologies, and managing the physical impacts of global climate change; or auctioned to provide revenue for the general treasury that could be used to offset tax cuts or to reduce the federal deficit, for example.  Any combination of these methods may be employed.

Sen. Obama has proposed the auction of 100% of GHG emissions allowances, with an estimated $250 billion a year in auction revenues being used for a variety of purposes, including an investment of $150 billion over 10 years to develop and deploy lower-emission energy supplies and create new jobs. Sen. McCain has been less specific on the subject of initial allowance distribution. His campaign’s website states that his program would eventually auction allowances, and would “work to maximize the amount of allowances that are auctioned by 2050.”  Similarly, the McCain-Lieberman bills would require the U.S. Environmental Protection Agency to determine how best to distribute allowances.

Back to The Candidates and Climate Change: A Guide to Key Policy Positions [4]

Appendix: Candidates’ Climate- and Energy-Related Policy Positions [5]