Trapped by a cap?

Suppose that you had to declare how much greenhouse gas your fleet emitted in a given year based primarily on the amount of fuel your fleet burned. After that, your emissions would be frozen or perhaps gradually reduced over an extended period.

If you reduced your carbon footprint faster than required, you could sell the right to emit more greenhouse gases to another company. On the other hand, if you needed to burn more fuel and emit more carbon dioxide for some bizarre reason – like adding trucks to your fleet or getting more productivity out of existing trucks, for example – you could buy credits from another company.

That’s a simple description of cap-and-trade – the principal mechanism numerous states and many in Congress want to use to reduce greenhouse gas emissions. A cap-and-trade system is really a cross between mandated emissions-cutting steps with penalties for noncompliance and a voluntary program that might just reward companies for superior performance in reducing carbon output.

In concept, cap-and-trade sounds reasonable, and proponents tout it as a market-based solution. But imagine trying to monitor compliance at the company level in multiple industries across the entire United States. Just establishing and verifying the baseline of greenhouse gas emissions under which each company would be judged would be daunting. But the logistics are just the beginning.

Make no mistake: Market-based regulation is still regulation. If a cap-and-trade system covered mobile sources like trucking, you likely would face upper limits on your carbon output. Sure, you could earn credits by improving your fuel efficiency, but you likely would wipe out those gains just by adding a couple of trucks to your fleet. You could buy carbon credits, but in some cap-and-trade proposals, trading could occur only within an industry. So you might have to approach a competitor to buy those credits. And imagine that you pursued a new customer only to realize you didn’t have room in your carbon footprint to serve the account. Perhaps you could provide better service at a lower rate, but someone else would get the business because you couldn’t buy the trucks you needed. Carriers might even buy other carriers just to gain access to their carbon credits. And how could the trucking industry as a whole meet long-term freight demand?

In effect, a cap-and-trade system for carbon emissions could return trucking to the economic regulation it was freed from a generation ago. Once again, a limited, government-allocated resource would disrupt the free market – only this time it would be carbon emissions rather than precious operating authority.

If all this sounds speculative, consider that 39 U.S. states, four Canadian provinces, one Mexican state and three Indian tribes have joined The Climate Registry, an organization that is developing standards for measuring, reporting and verifying greenhouse gas emissions in a number of sectors. The organization has circulated a draft reporting protocol that details how an operator of medium- or heavy-duty trucks would calculate its emissions.

The Climate Registry wouldn’t set environmental policy. Rather, it would be the standard repository for companies and organizations to file and update their greenhouse gas emissions. States would rely on the registry as the backbone of their own voluntary, regulatory or market-based programs. For example, the governors of nine Midwestern states last month agreed to establish cap-and-trade programs and to use The Climate Registry as the tracking mechanism.

Cap-and-trade probably isn’t workable for trucking, but state and federal governments might force it on the industry anyway. The American Trucking Associations is floating a better, simpler way for highway users to shed their share of carbon emissions: Take steps that would substantially reduce fuel consumption. That makes more sense than creating an Interstate Commerce Commission for greenhouse gases.