By Rick Nicholson There's been a lot of hand wringing and finger pointing in the wake of the U.S. mid-term elections by the clean energy community as it laments the death of carbon cap-and-trade. I believe this is due to the fear that, without carbon cap-and-trade, investment in clean technology will dry up. However, I'm not sure the situation is as bad as everyone seems to think it is. Let's first start with some basic assumptions. Let's assume that the U.S. Federal Government still wants to: 1. Address the problem of climate change by reducing carbon dioxide emissions; 2. Create domestic jobs as a component of economic recovery; and 3. Reduce the country's dependence on foreign oil. If this is true then most experts would agree that the price of fossil or hydrocarbon-based energy must go up and the cost of low carbon or clean energy must go down. When this happens it is reasonable to expect that we will see a reduction in carbon dioxide emissions, an increase in jobs associated with the clean energy sector of the economy and a reduced need to import fossil fuels, particularly oil, from foreign sources. I have to admit, I was never a big fan of carbon cap-and-trade to begin with. I know cap-and-trade has previously worked as a mechanism to reduce other types of pollutants such as nitrogen oxides and sulfur dioxide. But in those cases the markets that were created were pretty small and the technology to reduce emissions was readily available. Applying cap-and-trade to carbon dioxide would create a much larger market and, as we all know, large markets create opportunities for manipulation by Wall Street bankers and energy traders. Enough said. Also, many of the technologies for reducing carbon emissions are either unproven at commercial scale (i.e., carbon capture and storage) , more expensive and/or more variable in output (i.e., renewables) or have other financing and waste disposal problems (i.e., nuclear). Oil prices, if you ignore short term volatility, will inevitably increase over time as demand outstrips supply and as the cost of exploration and production increases. Technology innovation in the upstream business will not be enough to reverse the trend. At the same time the cost to produce energy from renewable sources such as wind and solar will continue to decrease as economies of scale in manufacturing kick in and as innovations in materials science continue to enter the market. However, will the pace of price change be fast enough to spur needed investments in clean technology? This is where the government needs to step in by accelerating the pace of price change - by making fossil fuels more expensive and by making clean energy less expensive. Carbon cap-and-trade is not the only way to make this happen. There are myriad other policy options in the form of incentives and disincentives that can achieve the same goal. Extending tax credits and loan guarantees for renewable energy, a national renewable or clean energy standard, feed-in tariffs and incentives for plug-in electric vehicles are just a few examples. If Congress and the administration decide to work together to craft and pass an energy policy that addresses climate change, creates jobs and moves us toward energy independence, then the death of carbon cap-and-trade may be viewed in hindsight as a positive rather than a negative event. The Clean Energy blog can be found at http://idc-insights-community.com/posts/8aff411950. By Rick Nicholson, Vice President of Research, IDC Energy Insights