Cap and trade is a government and business plan to help reduce human induced climate change. Under such a plan, polluters are taxed if they go over the cap. Companies that pollute under the cap are given credits that they can trade in the commodities markets.
The system has been in place in the EU for quite some time. Australia will start its cap and trade plan in 2010. After Barack Obama was elected President, Canada announced that they want a North America cap and trade system.
Several of the leaders in the fossil fuel industry have also started pushing for cap and trade.
Chevron says, “Guided by our Seven Principles for Addressing Climate Change, published in 2007, Chevron is working internationally and at the U.S. federal and state levels to build consensus on climate change policy. For example… in Australia, we provided input to the government on the development of a carbon trading program.”
Shell Oil says that cap-and-trade is “a good thing.”
Instead of cap and trade, ExxonMobil has said they would like a US carbon tax so they could gain certainty over how much carbon will cost in the future.
Exxon’s chief executive Rex Tillerson, said that while “it is hard to speak favourably about any new tax”, a carbon tax represents “a more direct, a more transparent and a more effective approach” than cap-and-trade mechanisms.
However, Shell would rather see cap and trade. James Smith, chairman of Shell UK said, “The cap in a cap-and-schemes trade ensures that the environmental objective is met – it works and it is already proven that it works,” he said, adding that any government setting a carbon tax would face the difficult challenge of setting the right price. “Set it too low and you won’t meet the environmental objectives, too high and you cut off economic activity.”