In a recent article, Dow Chemical spokesman Jonathan Moser said intensity targets are incompatible with a national cap-and-trade plan, particularly given the desire to make it compatible with a proposed regulatory system in the United States.

As I have pointed out many times before, every functional existing cap and trade regime with any track record in the world assigns at least two caps to any regulated source or distributor of regulated products: (1) an intensity cap and (2) an absolute cap, where the absolute cap is typically a little less stringent than the intensity cap multiplied by the average operating output/sales of the regulated plant/distributor.

It will always be true that growing industries are advantaged by an intensity cap without absolute limits. It is equally true that industries that are not planning to expand their national operating base are advantaged by absolute caps without intensity limits.

No clear-thinking regulator will do either. Any prudent regulator will assign both intensity and absolute emission limits to every regulated source or product.

Note that every electricity generation unit that is covered by the US SO2 cap and trade rule and every electricity and industrial source covered by the Los Angeles RECLAIM market rule, is governed by an air permit that includes both intensity and absolute NOx and SO2 limits.

No operator in either of those cap and trade markets can exceed either limit no matter how many NOx or SO2 allowances the operator might have in the bank. When/if you ask why this is true, you will find that the conditions that make it necessary to build these elements into the US SO2 and NOx markets also apply in the GHG2 context.

Please note that both ACES—the Waxman-Markey House bill—and the Kerry-Boxer Senate bill, oblige operators of Title VI and Title V facilities and any other operators of any source that discharges more than 25,000 TCO2e/year to apply for and comply with new  US GHG permits. This is step one in putting the multiple cap system in place.