Cap-and-Trade: The Wire Version

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So, this cap-and-trade thing that folks around government keep talking about — anyone know what it is? No? You’re far from alone. Thirty percent of those polled by Ramussen have no idea what cap and trade is; 17% think it has to do with healthcare; 29% believe it has to do with regulating Wall Street, while only less than a quarter (24%) correctly think it’s an environmental issue. 5% believe the Black man is God, and therefore the Supreme Soul Cap-and-Controller … I digress.

Given cap-and-trade will probably end up one of the most important pieces of legislation to come in our generation, I’ll quickly attempt to explain cap-and-trade first in government terms, and next in “The Wire” terms:

What government means by cap-and-trade is this: A limit on carbon dioxide & greenhouse gases is set in the U.S.  Most all sources that emit these gases must comply with this limit, which will drop annually. The government gives out or auctions off emission permits to the sources: factories, plants, refineries, farms, trucks, manufacturing centers, ships, etc. Each permit is equal to a ton of carbon. Sources can buy, trade or sell permits for profit on the market, according to needs. One source — say for example an oil refinery — has 100 permits for 2009. Another source — i.e. a steel processing plant — has 100 permits. The oil refinery finds a way to release only 50 tons of carbon — through technology, investing in decreasing emissions elsewhere (offsets) or by just lying about it — so they only use 50 of their permits. That means they have 50 permits left over to sell or trade. The steel plant finds out it needs 150 permits based off its emissions. The steel plant then can purchase permits sold from the refinery on the market. Everyone still remains under the overall cap.

Got it? Still confused? “The Wire” analogy:

DEA does a major sting and knocks off three out of four of a city’s major coke suppliers. With just one supplier in business, the number of packages going out are limited compared to what it was before. The supplier — we’ll call him Proposition Joe — strikes a deal: He’ll give the Barksdale unit 100 packages to distribute, and he’ll give Marlo’s unit 100 packages. That’s it; nothing left to work with.

The Barksdales are used to normally moving about 500 packages, and their terrain is so vast they don’t know how to make 100 work and still make a profit. Marlo is new and has somewhat less terrain. He may not be used to moving 500 like the Barksdales, but he knows how to move work efficiently and at a profit. So at the end of the day, Marlo’s moved 50 packages and has already made his money back — through the way he cut it, innovative distribution strategies, straight killin’ cats, whatever. The Barksdales moved their 100 but made very little profit. Marlo is feeling generous today and has 50 packages to spare so he approaches the Barksdales and offers to give them his 50 extra at a third of their street costs — it’s pure profit to Marlo, so all he cares about is getting the next re-up. The Barksdales have just enough to take those 50 off Marlo, which they can sell at full street value and now have a decent profit to work with.

Transaction done: Proposition Joe’s cap led to the trade between Marlo and the Barksdales; everyone profits; everyone’s happy. Even the DEA takes some consolation in the fact that less drugs are out in the street.

Still don’t get it? Write back and I’ll attempt more analogies.

(Above chart courtesy of Matt Yglesias’ Think Progress blog)

Be Mock’D is one of PLR’s featured contributors on the environment, politics and how the hood gets mocked by both. Read the rest of his opinions here.

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