There’s a wonderful article in Mother Jones called “Dreamers of the Golden Dream.” Mother Jones has always been one of my favorites: liberal, investigative, irreverent, and holds no hostages. In this case, however, Gabriel Kahn was more interested in people who were down and out and how California’s focus on reduced CO2 brought positive change. I also want to help those less fortunate, but my real interest is reducing greenhouse gas, CO2. Gabriel writes mostly about energy generated by solar and wind in California, and how it helps the disadvantaged. Great! I’m all for that. But my focus in this column is “Cap and Trade” and how California is leading our nation in legislation and regulation that will reduce CO2. 

The point: if we aren’t going to get leadership from Washington, then thank goodness for Jerry Brown of California. Okay, I’ll try not to go political!

First, what is “Cap and Trade?” Of course, you can go to Wikipedia, but I’d rather try to answer this in my language. Cap and trade is a regulation program designed to reduce greenhouse gas (CO2). It’s as simple as that. The point that causes everyone consternation is the use of the word “regulation.” If you’re a gun-toting NRA member, regulation is a fighting word! In the case of California’s Cap & Trade, someone has to be judge and jury. And trust me, cap and trade needs someone to make management decisions. The goal in cap and trade is to create a market price for emissions (or pollutants) that didn’t exist hundreds of years ago.

To be sure, there are alternatives to reducing CO2. A carbon tax, for example. Cap and trade, to me, makes the most sense. It focuses on the major offenders who are generators of CO2: power producers, transportation, and manufacturing. Cap and trade programs offset environmental damages that aren’t recognized as any kind of cost in the “process,” whether it be manufacturing or driving a car or creating energy. Got it? (If not, call me, and I’ll do my best to explain). This harkens back to Lester Brown’s concept of true cost: tell the whole story and make sure you include everything, e.g., emissions and how this affects our economies and our health.

The process is really quite simple: the regulatory body sets a limit on total emissions of CO2 on an annual basis. This, in a macro sense, can be set for our country. Or, in the case of California, for the state. Step two, we drive down into the specifics, where each generator is assigned a limit, or a “cap.”  The cap is supposed to shrink every year, hence we reduce greenhouse gas. So, cap and trade is a government-regulated, market-based, approach to controlling pollution by providing economic incentives (penalties), that underwrite polluters to reduce emissions.  After the cap has been determined, allowances are either handed out to businesses or auctioned off to the highest bidder. Companies are taxed if they produce a higher level of emissions than their cap provides. If they are below the cap they can sell the unused portion to others. This is called the “trade.”

In contrast, carbon tax or BAT (Best Available Technology) is not as flexible. Cap and trade schemes allow organizations, polluters, if you will, to figure out how best to meet policy targets. I realize some of you will consider this Orwellian (Big Brother is watching), but if we agree we have a problem, it’s a method to force reduction of CO2.  Yes, there is a central authority allocating permits for a certain period of time. But in defense of this process, every industry, utilities, cars, label printers, has a known baseline. In other words, we know through proven scientific technology how much CO2 is generated (ask my friend Bruce Riddell). In other words, we know that a car generates “X” amount of carbon dioxide per year. We’ve measured it. In theory, every year you must reduce or buy permits from someone who is below the target, hence the trade. Cap and trade is meant to provide industry with the flexibility required to reduce emissions while “stimulating technological innovation and economic growth.” (EPA)

Probably the most successful cap and trade scheme was started in California in 2006. They had been looking at a central system since the late 90’s and in 2006 finally created a system that was designed to freeze and ultimately reduce greenhouse gas emissions of power producers, transportation, and manufacturing in the state. Louis Blumberg, the head of the Native Conservancy’s climate program, said, “When I started working on this, California was the eighth largest economy in the world and the 12th largest emitter of greenhouse gas. Today, 10 years after establishing their cap and trade regulation, California is the sixth largest economy in the world and the 19th largest emitter. Their economy has grown. They have more cars, a larger population, and they have reduced their emissions. Cap and trade works. And this is without any support from our central government.”
Brendan Borrell, who coincidentally lives in California, reported in the 2017 Winter edition of Nature Conservancy Magazine about California’s Global Warming Solutions Act (A32), which targets the primary emitters of CO2.  This group, again energy producers, transportation and manufacturing, generates 85% of greenhouse gas in the state.  AB32 sets an overall cap on emissions and then allocates or auctions permits, known as “allowances.”

Any company that reduces their emissions below their allowance can sell their excess permits to those who exceed them (trade). Each year, the state reduces the cap by 3%. This reduces the number of permits available, creating a financial incentive for polluters to reduce their impact on the environment. The California concept will effectively reduce greenhouse gas emissions by 40% by 2020 from a baseline established in 1990. All this with a dynamic economy and population growth (at the same time, look at what is driving fuel efficiency and pollution control in our automobile industry).

Interestingly, energy companies can achieve their emission targets by switching from coal to gas or by investing in clean energy like wind and solar. Other manufacturers are allowed in the California cap and trade scheme to offset their emission requirements up to 8% by buying credits in approved conservation programs. In fact, California’s cap and trade market is putting money into 300 projects in 30 states.  These projects improve carbon sequestration and, as of this writing, have generated more than 69 million metric tons of verified assets.  Borrell reports that the Nature Conservancy is close to closing a deal in Michigan’s Upper Peninsula. Six thousand acres were about to be subdivided, which would have destroyed sustainable forestry. Instead, by selling carbon credits into the California market, that land will be protected and the Conservancy can restore the forest and manage it in a sustainable way, preventing 700,000 tons of carbon from entering the atmosphere.

California has demonstrated that focus and commitment can create a global solution to reduce greenhouse gas. California has already linked its carbon market with both the Quebec and Ontario provinces.  There are a number of other states that are following California’s leadership.  Jerry Brown was also invited to China to discuss a potential partnership with regional markets over there. So, cap and trade is happening in America and driving change in a variety of industries. I believe our industry can make a contribution, too. Unfortunately, the changes for waste diversion will not occur voluntarily. I believe we need a leader to guide us through the labyrinth of choices. We need a “Californian” to demonstrate that change is possible. Most scientists believe we need to cut emissions by 80% by 2050. Our waste is part of the problem.  Believe it or not, we actually have the tools to meet this requirement.  All we lack is that commitment and leadership. What will it be and when?

Another Letter from the Earth.


Calvin Frost is chairman of Channeled Resources Group, headquartered in Chicago, the parent company of Maratech International and GMC Coating. His email address is
cfrost@channeledresources.com.