Interestingly, Chinese solar stocks like Yingli Green have far outperformed U.S. solar stocks this year, largely because the Chinese stimulus package is perceived to be especially favorable for domestic solar installations.
Cap and trade, simply put, sets limits (caps) on the amount of pollutants that can be emitted. Companies are given certificates (allowances) that allow them to emit that level of pollutants. Companies that emit pollutants beyond the amount allowed can buy credits which represent the right to emit more pollutants. The idea is that the total amount of allowances and credits cannot go beyond the cap, which (in theory) becomes more restrictive as time goes on.
There have been several objections to cap and trade. Some object to them because it creates uncertainty as to cost, because the price of permits are not known in advance and will vary over time.
Because of this, some have advocated a straight emission tax, so corporations know exactly how much they have to pay, and indeed can pay less if they reduce emissions.
However, on Friday the Congressional Budget Office said that the cost of the cap and trade bill would only be about $22 billion, or $175 per household.
There are several large cap and trade programs that operate in different parts of the world. In Europe, there is a European Union Emission Trading Scheme, which requires companies that emit carbon dioxide to report their emissions and return allowances equivalent to their emissions.
The U.S. is the only industrialized country which has not ratified the Kyoto Protocol, a 1997 treaty that came into force in 2005, which requires signatories to adhere to a cap and trade system for the six major greenhouse gases. Many countries have not met their emissions targets, and there is currently discussion of a new, more comprehensive treaty, which is why Mr. Obama’s comments are very important.
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