Cap and Trade in Practice - WSJ.com

Cap and Trade in Practice - WSJ.com: "The world's carboncrats are beavering away this week on a vast new global cap-and-trade scheme that President Obama wants the U.S. to join. But before we do, maybe Americans should understand how this already works in practice. Union workers, take note.

The Kyoto Protocol of 1997 required signatories to reduce their carbon emissions, and the European Union in 2005 launched its own cap-and-trade system. The program sets a limit on carbon emissions, and companies are issued free carbon allowances that they can buy or sell based on their emissions needs.

Fast forward to this month's news that Corus, Europe's second-largest steel producer, is shuttering a giant U.K. steelmaking plant at Redcar, cutting 1,700 jobs. Corus blames the recession that has cut steel demand and says the British government hasn't done enough to help it.

Whatever the truth of that, there's little doubt that cap and trade made the closure much easier. The decline in steel production means European steelmakers have surplus carbon allowances. According to Carbon Market Data, a European research firm, in 2008 Corus had the second largest surplus of EU carbon allowances—7.5 million."