What to Do About Global Warming: A Basic Framework for a Good Cap-and-Trade Proposal

David Roberts at GristMill has been writing a series of thoughtful posts on the potential actions the 110th Congress may take to address climate change. As he recognizes in this post, we're now moving beyond simply demanding that Congress do something about global warming and have start thinking about what we want that something to look like. If we can't articulate some simple principles, we risk having growing momentum and calls for action co-opted to pass a weak, ineffective climate bill that fails to get the job done at the same time that Congress declares victory and tells us to pack up and go home.

As David writes, "We need the grassroots to be engaged, pushing back against the many half-ass measures on offer, lobbying on behalf of good measures." And to do that, to engage with the incredibly 'wonky' and complex yet enormously relevant topic of cap-and-trade proposals, people need some simple guidelines to help them see if a climate proposal is a good one or not. We need a few simple points we can latch on to, encourage our legislators to keep in mind and build pressure behind.

To that end, David recently outlined the general elements of what makes a good cap and trade system. Obviously there could be different priorities - Step it UP! 2 has a different, broader-focused list - but these are what both David and I agree are the key elements to a strong cap-and-trade proposal worth supporting:

1) Auction rather than give away emissions permits for free.
Free allowances are a windfall for polluters, forgo an excellent revenue source (that can help offset the costs to low-income energy users and spur clean energy investment ... see point 2 below) and undermine the price signal for polluters that's the whole point of putting a price on carbon.

2) Spend revenue wisely to spur development and deployment of clean energy and reduce impacts on low-income and vulnerable citizens.
Putting a price on carbon will raise energy prices and will do so in a regressive manner: those with lower incomes pay a much more substantial portion of their income to energy costs and will be hit hardest by higher energy bills. The regressive nature of a cap and auction policy can be remedied by pumping auction revenues back into reducing payroll or income taxes for low-income citizens - I would suggest an expansion of the earned income tax credit, for example. The remaining revenue should either be used to fund incentives and R&D in clean energy technologies, or to fund a flat, per-capita tax rebate/reduction for everyone. The former will help further reduce energy bills by decreasing the costs of the clean technologies that will help transition to a low-carbon energy future and the latter will be a politically popular way to help sell the whole concept, building support by producing tangible benefits to voters. Both also help further offset the regressive nature of a carbon price.

3) No 'safety valves' that undermine the integrity of the cap.
A 'safety valve' or cap on emissions allowance prices undermines the integrity of the cap and destroys the price signals necessary to incent investment in low-carbon technologies, sacrificing the goals of the legislation to protect polluters.

These are simple guidelines and principles for what an effective cap and trade program would look like. To David's list, I'll add one more crucial point:

4) Targets that get the job done.
This probably means a target of 10-20% below 1990 levels by 2020 and 80% below 1990 levels by 2050. We've got to cut emissions hard and fast in the United States to a) do our fair share to curb rising global emissions and b) gain credibility with the rest of the world, particularly China and India, as we try to lead an international effort to cut global emissions at least in half by mid-century. That will mean getting developing nations to agree to develop in a less carbon-intensive way and to adopt mandatory caps on their emissions, a tough sell unless we're leading the way with credible, strong actions at home.

To summarize, as David does, "auction permits, spend the resulting revenue wisely, and don't short-circuit the system with safety valves.

We can all remember that, right?" Oh, and don't forget (as David unfortunately does) that we need targets that will actually get the job done - 80% by 2050 - or the whole thing's pointless anyway.