In a budget President Obama described as “a blueprint for our future,” the Administration proposed a cap-and-trade system to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050. These proposals were detailed in the fiscal year 2010 budget outline delivered on February 26, 2008. Cap-and-trade programs have been used in the U.S. to reduce air pollutants like sulfur and nitrogen oxides that cause acid rain and smog, and Europe has a cap-and-trade system for carbon emissions. Under such programs, industries must meet a government-specified cap on total emissions, but individual facilities could trade credits in a new market. For example, a plant that emits less than its allotment can sell credits to others that exceed their allowances.

Under the Administration’s program, the initial allotments would be auctioned to polluters, starting in 2012. Although the cost of emissions remains uncertain—in Europe, the price of carbon has fluctuated in recent years between $13 and $38—the Administration expects the sale of credits to yield $646 billion by 2019. The revenue would be used to fund investments in clean energy technologies totaling $120 billion during the same period. The balance of the auction revenues will fund the Administration’s “Making Work Pay” program, which would make permanent the $800 income tax credit that was introduced in the American Recovery and Reinvestment Act. Implementation of the proposed cap-and-trade program and emission targets requires action by Congress, where support varies by region. Many lawmakers from rural districts and manufacturing and coal states oppose such a program, fearing it will cost jobs and harm local industries.

The federal action follows other state and regional efforts. California is relying on a cap-and-trade program to reach the reductions in greenhouse gas emissions mandated by AB 32 and targeted in Executive Order # S-03-05. These efforts aim to cut greenhouse gas emissions to 1990 levels by 2020—a reduction of approximately 30 percent—and then to 80 percent below 1990 levels by 2050. California’s program, which will start operating in 2012, is being designed to work closely with the system being set up by the Western Climate Initiative. This system would include seven western states (including California) and four Canadian provinces. It is currently unknown how the federal program, if enacted, would interact with state and regional programs or whether the federal program would eventually supplant these other efforts.