For Now, Cap-and-Trade All We've Got to Save Planet

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Byline: Bob Doppelt For The Register-Guard

As flawed as it appears, the Senate must pass the Waxman-Markey cap-and-trade climate protection bill approved by the House last Friday.

The American Clean Energy and Security Act of 2009 is the best chance the United States has to demonstrate its commitment to reducing climate-damaging carbon dioxide emissions. Without such a commitment, there is little chance that world leaders will strike a new global emissions-control accord in December in Copenhagen.

The debate surrounding the Waxman- Markey bill has illuminated many of the limitations of cap-and-trade. It also raised the visibility - and limitations - of a carbon tax as an alternative, proving there is no silver bullet in climate legislation.

Just as people drove less when gas prices reached $4 a gallon, a carbon tax seeks to raise the price of activities that emit carbon dioxide high enough to stimulate the production and use of low- carbon alternatives.

In cap-and-trade, government sets a limit, or cap, on the total amount of CO2 that can be generated, allocates the right to emit a specific fraction of the total among different polluting entities, and then ratchets the cap downward over time. Users that cannot reduce their emissions to meet their cap must buy allowances from those who generate less. Essentially, they must pay to emit CO2, while the seller reaps financial rewards for reducing emissions below their cap.

One of the most informative debates I've heard about the two approaches occurred at the International Scientific Congress on Climate Change in March in Copenhagen. Nicholas Stern the former chief economist of the World Bank who favors cap-and-trade, squared off against William Nordhaus, a noted Yale economist who supports a carbon tax.

Nordhaus argued that a carbon tax could apply to all entities that emit CO2, from large energy producers to individuals, that cap-and-trade would not directly affect. It also would set a clear and predictable price on the emission of carbon for years to come, while cap-and-trade would obscure the price and produce highly volatile spot prices.

The revenues generated by a tax would stay in country and could be invested in new technologies or rebated to the public in some way. In addition, a tax could be easily and quickly implemented, because the collection mechanisms already exist, while it will take years to deploy an emissions trading system.

Further, Nordhaus noted, a tax would avoid many of the risks inherent in cap-and-trade. For example, corporations would not be able to game the system by paying a third party in another country to "offset" their emissions without actually reducing their own. …