EPA Punishes States Refusing To Implement Cap-And-Trade

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Steve Ambrose Contributor
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An overwhelming number of red states will be negatively impacted by the Environmental Protection Agency’s carbon regulations, a report from the Chamber of Commerce concluded.

The results are in stark contrast to consequences for more liberal or progressive states, who stand to gain financially from the new EPA rule.

The Clean Power Plan is an administrative proposal to reduce carbon emissions by 32 percent below 2005 levels by 2030. The purpose is to encourage a national shift to alternative energy sources, like wind, solar, or nuclear power.

Nationwide compliance with the new emissions goals are established by what is commonly known as cap-and-trade.

Cap-and-trade is a two-pronged federal program that involves setting a limit on the total amount of carbon that can be released into the atmosphere (cap) and allowing monetary exchanges between states to help them fall within the mandated carbon limits (trade). Each year, the total carbon cap will be gradually lowered.

The new carbon standards would affect utility companies generally operating in the oil, gas, and coal sectors; and the majority of states that produce these energy sources are conservative states.

To facilitate trading under the program, companies are assigned certain “allowances” for a specific amount of carbon dioxide they are allowed expend. Companies that exceed their given carbon allowance have the option to buy unused allowances from other businesses.

As a result, this compliance mechanism essentially identifies states as either creditor or debtor states. A creditor state has a carbon emission rate that is lower than the federal carbon cap. Therefore, that state may increase their carbon output up to the cap or they have the flexibility to sell their allowances.

Debtor states, however, have a carbon emission rate that is higher than the mandate. To comply with the regulations, they are required to either lower their carbon output below the cap or they must purchase allowances from other creditor states.

The states that predominantly produce oil, gas, and coal are likely to be debtor states—and hit hardest by the regulations—because these states will have a difficult time getting under the carbon cap.

California, Delaware, Idaho, Maine, Massachusetts, New Hampshire, New York, Oregon, and Washington are all creditor states that may ultimately sell their allowances to the rest of the debtor states.

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Steve Ambrose