Cap-and-Trade: The Really Long View

Editor’s Note: This post was written by guest contributor Nick Hodge, Matter Network Contributor. Nick also writer for GreenChipStocks and is the co-author of the bestselling book, Investing in Renewable Energy: Making Money on Green Chip Stocks.

We’re all now well aware of the imminence of cap-and-trade legislation becoming reality.

It’s been floated in Congress. It was a major topic on the campaign trail. It has enough support to get through a democratic-led Congress. And the President has verbally committed to such a scheme to numerous world leaders.

A recent New York Times article called it “inevitable.”

In case you’re not familiar with cap-and-trade, it’s a system that limits the amount of carbon a company can put into the air. If they come in over their limit, they must buy carbon credits, at the rate of one ton each, until they offset the difference.

The credits are provided by clean energy companies, investors, developers, and homeowners that create projects that reduce emissions.

This system will prove vital to rapidly increasing our use of renewable energy by making burning coal much more expensive. It’s been eagerly awaited in cleantech circles for years, after the U.S. backed out of the Kyoto Protocol, a similar scheme, under George Bush.

It’s a good idea, and it’s already proven effective. And it still uses the fundamentals of supply and demand to dictate price, making it a market-based system. If companies reduce their in-house emissions, there will be low demand for credits, and prices will remain subdued. But if companies fail to adopt sustainable practices, they’ll be forced to by increased amounts of credits, and the price will rise.

Either way, cleantech benefits.

This is all but said and done. We’ll have such a system in a few years’ time.

But I want to use all of the buzz about cap-and-trade to make a bold prediction about the use of market-based systems to cure future environmental woes.