The news media have been talking about a Clean Energy Act that is referred to as Cap And Trade. Specifically they are referring to House Bill HR2454 officially called “American Clean Energy and Security Act of 2009. It was introduced by Representatives Waxman (D-CA) and Markey (D-MA). It was put on the House Calendar on May 15 of 2009 and it received a passing vote in the House of Representatives on Friday June 26, 2009. The vote was 219-212. It has yet to be voted upon in the Senate. It has the full backing of President Obama.

Some environmentalists believe that the Green House Gasses (GHG’s) are the direct cause of Global Warming and the reduction in GHG’s can reduce the temperature of the earth. With Cap and Trade in place they predict that they can reduce the earth temperature by 2 degrees Celsius by 2050. Whether man-caused global warming actually exists is still up for debate. Many believe that we are in a natural cycle where the earth warms slightly and then cools slightly as a natural occurrence.

Cap and Trade is a technique that is already in use in Europe on Green House Gases (GHG’s). The process is controlled by a Common Market government agency and it allows for the setting of a CAP for the total amount of GHG’s that can be produced in a year by all companies. The measure is in Metric Tons of CO2 (Carbon Dioxide) and a Trade Unit is a Metric Ton of contaminants per year. Companies purchase the right to emit whatever amount they need from the agency at a fixed price. When all of the permits are sold that reach the limit allowed, the companies needing additional permits must TRADE with other companies who do not use all of the permits they purchased. That is the source of the term Cap and Trade.

House Bill HR2454 is similar to the European Law. All fossil fuels (coal, oil, gasoline, & natural gas) give off the offending Green House Gases when they are consumed. Any company selling large quantities of these products will have to purchase these trade permits. Each year the agency will issue less permits in order to reduce the level of Green House Gases emitted. Those companies that cannot reduce their emissions by the required amount will have to purchase permits from companies that are successful in lowering their emissions and have surplus permits. If trade permits are not available, companies will have to produce less fossil fuel energy or reduce their production or sales in the USA.

Although they are dealing with a number of gases, the biggest item is carbon dioxide. You may remember from high school biology classes that when humans breathe, they take in oxygen and breathe out carbon dioxide. This is the same CO2 that we are talking about. You might remember that plants take in carbon dioxide for their photosynthesis and they give off oxygen. At the same time that our carbon dioxide levels have increased, our population has increased at a more rapid rate. In addition to the Carbon Dioxide that the fossil fuels produce we are breathing out more carbon dioxide. We have reduced our forests and green plant coverage by millions of acres for housing and industrial buildings and this has reduced our natural ability to convert carbon dioxide to oxygen.

The Congressional Budget Office estimates that the sale of the permits for the Caps will generate $1.19 Trillion in the first 9 years. They estimate that the government agencies required to license and monitor this program will cost $1.21 Trillion in the same period so the process will operate at a small deficit if it operates as planned.

Where will the money come from to pay for the permits to emit the GHG’s? The government tells us that it will come from rich corporations that can afford to pay for the permits. But a simple non-economist like I am can figure out that the corporations plan to continue to make a profit. That means that they will pass on the cost of the permits to their customers in higher prices. As customers you and I will pay the $1.21 Trillion cost for operating these agencies for the first nine years.

It is estimated that the cost of heating energy will increase along with the cost of gasoline for our cars. Since much of our electricity is generated from coal, there would be an increase in the cost of electricity for our homes. Natural gas for heating our homes will also increase in cost.

No one knows if reducing GHG’s by 70 percent (which is the goal) will affect the temperature of the earth. This reduction is an experiment. This is a big price to pay for an experiment because some environmentalists believe that the earth is warming.

One other consideration is that China, India and Mexico are making no attempt to reduce their GHGs or regulate them. They will welcome our industries that must move out of the country because they cannot operate under the new restrictions of the American Clean Energy And Security Act.