In some ways, it is nice that the Lieberman-Warner Climate Act stalled so that policy makers and citizens have a little more time to sort out the options when it comes to climate regulation. The L-W bill represented a cap and trade program, but there are lots of other options as well:

1. Cap and trade: in this scenario, a national limit, or cap, is imposed, permits to pollute a set amount are freely distributed, and participants can trade permits amongst themselves, creating a correlating fiscal value. It is unclear what would happen to revenue from this type of policy and the cap and auction.

2. Cap and auction: same idea as above, but permits aren’t just handed out, they are auctioned off. Both cap and trade and cap and auction have the usual market-manipulation and gaming risks that most financial tools have.

3. Cap and dividend: this is an interesting idea where a limit is imposed, companies are forced to pay for permits, and then the revenue from the permits are equally distributed to all adult taxpayers like a return. The idea here is that all Americans are environmental “shareholders”, and they deserve a return when their company is used for profit. This model could create a strange situation where voters don’t want companies to reduce their carbon usage because they like getting the profit from the carbon permits.

4. Carbon tax: while many of the above programs would act as a tax, this would be a straight tax and could be imposed in a variety of ways; on the produced of fossil based products, on the consumers, etc.

Photo by Bloomberg Press