Obama Announces Framework for Greenhouse Gas Cap-and-Trade Program

March 2, 2009
MGKF News Flash

As part of its proposed budget released on February 26, the Obama administration included its most definitive statements to date concerning its desire to enact an economy-wide cap-and-trade program for greenhouse gas (GHG) emissions and the overall GHG emission reductions that will be achieved. Specifically, the proposed budget states that the Obama administration intends to work with Congress and stakeholders to develop an economy-wide cap-and-trade program to reduce GHG emissions to 14% below 2005 levels by 2020 and 83% below 2005 levels by 2050.

Obama's budget states that the federal government will raise $646 billion between 2012 and 2019 through the sale of allowances under this cap-and-trade program. Significantly, the current plan contemplates that the federal government will auction 100% of the emission allowances established by the program to affected sources rather than allocate such allowances for free in any amount or for any limited period of time. The budget also states that $150 billion of this revenue will fund clean energy investments, while the remainder will be directed to "vulnerable families, communities and business to help the transition to a clean energy technology."

Notably, Obama's current plan has dropped references to using 1990 GHG emissions as the baseline against which to measure emission reductions in favor of a 2005 baseline. Accordingly, in evaluating possible costs and opportunities associated with this proposed cap-and-trade program, such as offsets or early action credits, potentially affected sources may wish to consider how such issues would be affected if a 2005 baseline is ultimately adopted.