Less than a year ago, “cap and trade” was the policy of choice for tackling climate change.

Environmental groups and their foes in industry joined hands to embrace the approach, a market-driven system that sets a ceiling on global warming pollution while allowing companies to trade permits to meet it. U.S. President Barack Obama praised it by name in his first budget and the authors of the House climate and energy bill passed last June largely built their measure around it.

Today, the concept is in wide disrepute, with opponents effectively branding it “cap and tax”, and Tea Party followers using it as a symbol of much of what they say is wrong with Washington. Mr. Obama dropped all mention of cap and trade from his current budget. Why did cap and trade die? The short answer is that it was done in by the weak economy, the Wall Street meltdown, determined industry opposition and its own complexity.

The idea began as a middle-of-the-road Republican plan to unleash the market to reduce power plant pollution and spur innovation. But when lawmakers tried to apply the concept to the far more pervasive problem of carbon dioxide emissions, it ran into gale-force opposition from the oil industry, conservative groups that portrayed it as an economy-killing tax and lawmakers terrified that it would become a bonanza for Wall Street traders and Enron-style manipulators.

“Economy-wide cap and trade died of what amounts to natural causes in Washington,” said Fred Krupp, president of the Environmental Defence Fund, who has been promoting the idea for more than two decades. “The term itself became too polarising and too paralysing in the effort to win over conservative Democrats and moderate Republicans to try to do something about climate change and our oil dependency.”

Cap and trade was first tried on a significant scale 20 years ago during the administration of the first President George Bush as a way to address the problem of airborne sulphur dioxide pollution — widely known as acid rain — from coal-burning power plants in the Eastern United States. A limit was imposed on emissions from the plants, and utilities were allowed to buy and sell permits to comply. Today it is considered one of the most effective environmental initiatives.

Environmentalists and industries resurrected the idea in recent years as a centrepiece of measures to address global warming and growing oil imports. Representatives Henry Waxman, and Edward Markey built their climate change bill last year in large measure around it.

But in trying to assemble a majority to pass it, Mr. Waxman and Mr. Markey dished out a cornucopia of concessions and exemptions to coal companies, utilities, refiners, heavy industry and agribusinesses. The original simplicity was lost, replaced by a bazaar in which those with the most muscle got the best deals.

Opponents labelled it a tax-and-redistribution scheme.

The House narrowly passed the bill last June, but the Senate has moved slowly to take it up. Kerry and Graham, along with Sen. Joseph Lieberman, independent of Connecticut, have been trying to find support for a comprehensive measure. They, too, have been forced to seek compromise, offering incentives to oil drillers, nuclear power advocates, anti-tax groups, coal companies and utilities.

Senators Maria Cantwell and Susan Collins have proposed an alternative that they call cap and dividend, under which licenses to pollute would be auctioned to producers and wholesalers of fossil fuels, with three-quarters of the revenue returned to consumers in monthly checks to cover their higher energy costs. — © 2010 New York Times News Service

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