"Cap and Dividend" Proposal Could Prevent Carbon Speculation

Talk about a truly toxic asset. Critics of the main cap and trade proposals being hatched on the Hill right now are concerned that commodifying carbon could result in dangerous speculations that have the power to undermine the entire economy.

According to a new report developed for the Copenhagen conference by the Institute for Agriculture and Trade Policy, a Minneapolis-based think tank, the current Kerry-Boxer legislation does little to prevent unregulated "subprime carbon" trading in secondary markets by hedge funds and other Wall Street power players. To give you an idea of the stakes, the Commodity Futures Trading Commission estimates that the carbon derivatives market could be worth $2 trillion by 2017.

Senators Maria Cantwell, a Democrat from Washington and Susan Collins, a Republican representing Maine, agree that it's a bad idea to create a new public, financial market for trading carbon emissions permits. Today, they've proposed a bipartisan alternative, reports CQ politics:

The Cantwell-Collins alternative would instead create what has been called a "cap and dividend" structure. The government would still cap emissions and sell carbon permits, but the polluters -- such as coal producers and oil companies -- could trade the credits only among themselves. There would be no outside market for trading the emissions credits.
There's been an argument over the threat of carbon speculation for months. Last July, the New York Times' Paul Krugman wrote that the carbon market critics' "reaction is 99% wrong, and bad for the planet."

However, there has been documented speculation in Europe's carbon trading scheme thanks to a legal loophole. And we all know that no one writes legal loopholes like Washington lobbyists.