What's Cap and Trade? A New Video Breaks it Down and Reveals the Plan as a Scam

Whether you listen to NPR or Rush Limbaugh, you've probably heard about climate change. And if you've heard about climate change, chances are you've also heard about "cap and trade." It's a scheme that tries to sell business-as-usual as a solution to global warming.

Here's how it works. The government puts a limit on how much greenhouse gas can be released in a year (the cap), and industries covered by the system are issued an equivalent number of emissions permits. As the cap is tightened each year, permits become scarcer and thus more valuable. The increasing value of the permits is supposed to encourage dirty industries to clean up their act fast, and sell their spare permits to the dinosaurs that didn't innovate. That's the trade.

The theory behind cap and trade is that the planet doesn't care where you reduce emissions, as long as you stay under the cap. And by trading permits, you maximize efficiency and make it profitable for corporations to shrink their carbon footprints.

Everybody wins, right? Wrong. A new short film, The Story of Cap & Trade, released by the Story of Stuff and Free Range Video explains why the real of story of cap and trade is that it's easy to scam, riddled with loopholes, and a dangerous distraction from the real change needed to protect people and the planet.

First of all, cap and trade programs are easy to cheat. In Europe, where carbon trading has been under way since 2005, energy corporations were asked how many permits they needed and were given that amount for free. But they made out like bandits when they still raised consumer prices as if they had paid top dollar. The result: more than $30 billion in windfall profits. And to add insult to injury, emissions didn't decline because corporations had overestimated how many permits they needed. Under the U.S. cap and trade law snaking its way through Congress, 85 percent of the carbon credits would be given away to polluting industries for free.

Here's the second problem. Cap and trade includes offsets -- a kind of carbon trading that allows polluters to finance projects outside the cap that purport to cut emissions, and then claim the cuts for their own. Even in theory, offsets don't lower emissions -- they simply move reductions from one place to another. In reality, offsets are rarely "additional" -- meaning that the cleaner projects were going to happen anyway. But because the offset creates carbon credits, the company that provided finance has permits to keep polluting at home. Even if the atmosphere doesn't care where pollution comes from, the people who live next to the power plants and factories do.

Unfortunately, many offsets are just scams. Consider the case of Sinar Mas. This pulp and paper company cut down native forest in Indonesia, causing major devastation, and then planted palm oil trees on the wasteland it had created. Guess what it got for that? Offset credits for reforesting. This company destroys an entire forest ecosystem, installs a monoculture industrial plantation, and can still turn a profit from selling the trees cut down, the palm oil produced in their place, and carbon credits. As a result, a company somewhere else can continue to pollute. It doesn't make any sense.

Third, carbon trading creates a new derivatives market in carbon credits that's ripe for speculation. Remember the mortgage crisis, where bad loans were bundled and resold ad nauseum? Now imagine the investment banks that brought us the financial crisis gambling on carbon derivatives -- and toxic carbon credits backed by nothing but hot air -- creating a carbon bubble. This time when the bubble bursts, we could lose more than our houses. Our planet's ability to sustain life as we know it is at stake.