After much negotiations, the Democrat-controlled House of Representatives finally managed to pass President Obama’s “Cap-and-Trade” bill as part of the president’s domestic agenda.

The concept of “cap-and-trade” is that the government would set a fixed amount of pollution for a polluter. That will polluter will then have the option of reducing carbon emissions, in a manner entirely left to him to devise, or buy permits in order to emit beyond one’s fixed amount. “Cap-and-trade” is supposed to create an incentive for polluters to reduce emissions beyond their fixed limit because that way they can sell as permits whatever amount of unused pollution “space” below the fixed limit. Nor does “cap-and-trade” just move pollution around as initially it may appear. Congress sets a limit now but over the years permits will be reduced and reduced so every polluter will eventually have to make reductions. “Cap-and-trade” is the more market friendly approach to previous command-and-control ways toward reducing emissions. It employs a market trading floor of exchange, creates incentives and allows business to figure out their own way toward reduction rather than the government telling them how to reduce emissions.

The original plan was that the Congress would sell permits and then slowly strip them from the market. President Obama’s own 2010 budget calculates billions in permit sales. But the powerful energy industry lobbied Congress to issue the first round of permits free-of-charge. The Obama administered was opposed to this, but Congress gave way to the energy industry on the reasoning that if made to pay the energy industry will just pass on costs to already recession burdened Americans.

Since the energy industry was not keen on cap-and-trade in the first place, it seemed like a decent compromise.

The Senate will have to pass the measure [a likely outcome] before President Obama can sign it.