Question of the Week
The landmark 2008 Energy Legislation authorizes a "Cap and Trade" program to reduce greenhouse gases in Florida. What is a "Cap and Trade" program and how will it affect our economy and energy prices?
The 2008 Energy Legislation creates the "Florida Climate Protection Act" effectively making Florida a part of the rapidly growing carbon market. As the second fastest growing state with respect to annual increase in greenhouse gases (GHG), the creation of a cap and trade program was necessary and timely to address the challenge of climate change.
Cap and Trade Basics: A cap and trade program is a market-based approach for reducing emissions of GHG through economic incentives and rewards. The "cap" is the total amount of GHG that can be emitted by an industry and is set by the government. The government distributes "allowances" or "credits" to companies allowing them to emit their portion of the overall cap. Since some companies may need to emit more GHG and others less, the credits can be bought and sold among the industry. This is where the "trade" comes in. A company, who reduces its carbon footprint and generates a surplus of credits for itself, can sell those credits to another company that needs more. This concept of free trade is expected to create powerful incentives for companies to reduce their GHG, voluntarily, by creating a valuable commodity, the carbon credit.
The Current Market: All around the world, countries have eagerly entered into this booming market. Estimates by The New York Times place the carbon market values at close to 30 billion with the potential to grow to 1 trillion over the next decade. The European Union has been operating a carbon-trading program since 2005. In the United States, the Mid - Atlantic States, the Western states and the Northeast are developing regional GHG trading programs, opening the market across state lines. The Federal government is closely examining the viability of a nationwide cap and trade program. Numerous businesses, from software companies to brokerage firms, involved in some aspects of the carbon market are experiencing explosive growth worldwide. The allure of this market is so strong that major U.S. companies are racing to the start line to ensure they have a piece of this proverbial pie.
This is not to say that the cap and trade program is without criticism or skeptics. Certain interest groups doubt its pollution reduction abilities, its potential lack of accounting, and the introduction of free markets into environmental policy-making. However, prior emissions trading programs have proved successful, such as the Acid Rain program of the 1990's, which effectively reduced sulfur dioxide from the atmosphere.
Florida's Goals: Florida's initial entry into this market applies to emissions from electric utilities only. Although, with the Governor's directive that by 2050 Florida GHGs will be reduced by 80% of 1990 levels, Florida's cap and trade program may expand to cover other industries. The Florida Department of Environmental Protection (DEP) will be developing rules to administer the cap and trade program. These rules will be developed over the course of the next few years, if not longer, and the Legislature must approve them before they become law.
While there is still much to learn about how this program will affect Florida's energy prices, the economy, and creation of "green-collar" jobs, the Governor's Office, the Legislature and state agencies expect the impacts will be beneficial to Florida's ecosystems and the economy.
Today, there is no charge to emit GHG into the atmosphere. The cap and trade market effectively puts a price on the right to emit GHG. Many companies should seriously explore how this new market might provide them with business opportunities, while improving the environment.
Monitoring the DEP's rule development gives interested stakeholders the opportunity to stay informed and even provide feedback. With its overall goals of promoting flexibility, scientific innovation and cost effectiveness, this cap and trade program puts Florida at the forefront of meeting its climate change challenges.
If you would like to learn more about this or other sustainable development practices, please contact the attorneys at Gunster Yoakley's Environmental Law Practice Group.
