Cap and trade is a very bad idea so it's hard to judge whether this would make it any worse. Since it is a huge tax on the middle class, the best thing would be to give them away if they can't be done away with altogether.

I'm a fan of cap and trade. It has worked very well in the SOx and NOx market, but just giving away credits isboth a bad idea and undermines the strengths of the cap and trade program.

Ideally a Cap and Trade will let the market decide winners. A company that can cut back its CO2 emissions will succeed where one that cannot will suffer a disadvantage. There is incentive to improve processes, efficiencies and technologies.

Giving away credits mucks with this process in several ways. One, it lets the government choose winners, resulting in firms with the most political connections and not the best products/processes gaining an advantage. Two, it deprives the government and the people of revenue that would go to offsetting some of the costs of higher power. Finally, if too many are given out carbon prices crash and there is no incentive for firms to cut back carbon emissions since buying credits may be perceived as being cheaper.

So cap and trade can be a great market based tool to acheive policy ends, but if it is subverted it can further entrench inefficient but politically connected firms while inducing an increase in prices for consumers.

Why is it that, if it's a bad idea, that's what I think we're going to go for.
The lobby's will fight tooth and nail for every penny from a fart of CO2. I've lost over 120 pounds so that my ass ain't worth much. Rush's, on the other hand, is the MOTHER LOAD!!!
Get rid of lobbyist money, and get better elections and better politicians.
CAP AND TRADE LOBBYIST MONEY! Or, better yet, eliminate it.

... but without forcing Congress to admit what they are doing.

If Congress were willing to admit what they are doing they would tax CO2 emissions or the carbon content of fuel. The entire appeal of the "cap and trade" regimen is that it is impenetrable.

Wait, that's my senator! Dad-blast it!

I like the carbon tax idea. It sends a market signal. We just need to calibrate the tax to provide incentives for green energy without crashing the system.

If senators don't understand the basics of cap and trade, then maybe it is too complex to implement and we should go for directed reductions instead?

To be fair, there is a disparate impact of carbon tax / cap and trade that will hit harder in the "Coal Belt" states. It would reward regions that have, by dint of geographical location, greater access to carbon free energy sources.

This though is why it's crucial to upgrade our electrical grid to allow energy to flow cheaply and efficiently from where the sun shines to where the people live. And that's why a chunk of the Cap & Trade revenue is designated to improve the grid(?) and invest in carbon free electric generation.

One problem is that any Senator who rises to the chairmanship of a committe has, by definition, been around a while. During that time, he/she has had the "opportunity" to be bombarded by lobbyists, and to have said lobbyists contribute mightily to his/her campaign coffers.

As the Senator moves up the food chain, the lobbyists return, year after year, saying "remember last year, when our argument for/against xxxx legislation was . . ." and "remember last year, when we contributed . . . " -- well, BOTH of those [the arguments and the contributions] -- continue to be true THIS year.

The only way to get any new ideas and a fresh point of view is to remove those who've been captives of the lobbyists, and that ain't gonna happen for a l-o-n-g time.

Giving away permits is just bad policy. It's a handout to corporations hidden within the arcana of cap and trade legislation where members of Congress do not have to fess up to it. It opens the floodgates to everyone else who would like Congress to give them money, which is to say: to everyone in the country. And it raises costs to everyone else.

Jeff Bingaman: just say no.

Letting Congress dole out freebies is picking and choosing winners & losers and it just begs for lobbyists to bribe reps. It's not only bad policy it is really really stupid.

Bingaman is smarter than that and should be ashamed he overlooked this obvious goof.

MDK has it exactly right. Kevin's article doesn't explain this point well. Prices will go up as a result of a cap and trade system, auctioning all the permits or giving some or all of the permits away.

The big difference is that if all of the permits are allocated to firms, they'll likely make huge windfall profits, while if the firms have to pay for all of the permits, profits will go down, and the government gets the difference in revenue, which enables it to compensate consumers/lower other distortionary taxes.

In the long run, giving away permits also results in carbon intensive sectors of the economy being (inefficiently) too large, while auctioning all of the permits means that the carbon intensive sectors will be (if you've set the cap correctly) the appropriate size.

The worst thing is that many of the companies with their hands out for free carbon permits are running plants that are dirtier than the Clean Air Act requires, but are grandfathered in. If these guys get to pollute for free, how will clean-energy providers compete against them?

Now, I'd be willing for the government let established players pay for their permits on the installment plan. Times are tough, they might not have enough money in the bank today.

I believe that a straightforward carbon tax is much preferable to a cap-and-trade system. But cap-and-trade is better than nothing at all. If a cap-and-trade system is the only thing the current Congress is going to consider, then the permits must be 100 percent auctioned. Otherwise it is a giveaway to polluters and its effectiveness is severely reduced.

We have run out of time to screw around with this. According to mainstream climate scientists, we have at most 5 years in which to stop the growth of CO2 emissions and begin a rapid decline, with large reductions in the early years and essentially phasing out ALL fossil fuel use by mid-century, if we are to have any chance of avoiding the most catastrophic effects of anthropogenic global warming. Many climate scientists believe that we may have already set into motion irreversible, self-reinforcing feedbacks and that global civilization-threatening catastrophe is now unavoidable.

Meanwhile, CO2 emissions are not only increasing every year, they are accelerating.

The Obama administration's stated emissions reduction targets are clearly inadequate -- they are not anywhere near what the world's scientific community knows is necessary to avoid disaster. But we have to start somewhere.

Any reduction regime that Obama and the Congressional Democrats are likely to be able to enact into law now, through whatever combination of carbon taxes, cap-and-trade, regulations, bans on construction of new coal-fired power plants, mandates and incentives for renewable energy, etc. will certainly have to be strengthened and accelerated in the near future.

If, as some experts now predict, the Arctic is ice-free in summer by 2013, such a shocking event (along with other severe effects, like prolonged intense droughts all over the world) may "stimulate" the political will for a crash program to seriously reduce emissions. But by then it will probably be too late.