The following guest post by Steve Kirsch presents a persuasive case that cap-and-trade systems (also called an emissions trading system[ETS]) are NOT the right way to put a price on carbon. This is relevant to the US Waxman-Markey bill, and Australia’s Carbon Pollution Reduction Scheme [CPRS]. Instead, a ‘fee and dividend’ approach is advocated. Read on to find out why…

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Executive Summary
Four key reasons why it is important that we use a fee-and-dividend approach to regulating carbon emissions:
1) Fee-and-dividend is, without any doubt, the best way to regulate carbon emissions.
There is near universal agreement among experts including Al Gore, Jim Hansen, the inventors of cap-and-trade, economists, the CBO, EPA regulators, and Sierra Club that fee-and-dividend is the best way to achieve the goal of carbon emission reductions because it puts a predictable price on carbon. Conversely, cap-and-trade, even in the most optimistic scenario, would achieve virtually no reductions and in any practical, real-life scenario, would actually make the problem worse because at best it would lock in today’s emissions for decades.
2) Fee-and-dividend is popular with voters.
Fee-and-dividend is politically viable. In British Columbia where the opposition party made it an election issue, they proved it was political suicide to oppose it. The opposition party now supports it. There are now carbon fee laws all over the world, including in the US.
3) Fee-and-dividend helps our economy and our environment: it is a double-dividend.
Fee-and-dividend helps our economy whereas cap-and-trade would hurt our economy. So fee-and-dividend is a great idea even if you don’t believe in global warming; we pass the bill for the economic benefit and we get the environmental benefit for free. Economists call this double benefit (economy and environment) the “double dividend.” Cap-and-trade does not have a double dividend.
4) Cap-and-trade would irreparably harm our environment and hurt our economy.
The cap-and-trade bills would, even under ideal circumstances, insignificantly reduce emissions by 2020 according to the CBO analysis. Under any practical scenario, it would hurt the environment irreparably because it allows business as usual (BAU) for 17 years. This is why Jim Hansen is so against it and why key individuals within the green groups are personally opposed to the cap-and-trade part of the House and Senate bills. Cap-and-trade is a “double whammy,” hurting both our economy and environment.
Cap-and-trade must be defeated because it will do irreparable damage to our ability to mitigate climate change and hurt our economy at the same time. There is no analysis anywhere that disputes what Hansen says.
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The alternative, substituting Senator Cantwell’s bill (CLEAR Act of 2009) for the cap-and-trade section of the Senate bill, will help both the economy and the environment. Unfortunately, nobody is paying attention to Cantwell’s bill because cap-and-trade is sucking all the oxygen out of the room. It can easily replace the cap-and-trade part of the Senate bill. There is also an excellent 10-minute YouTube video entitled “The Huge Mistake” which summarizes the case for fee-and-rebate. I highly recommend this video.
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The four biggest myths about fee-and-dividend
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Myth #1: The cap-and-trade bill isn’t perfect, but it will get the job done and it has everyone behind it so it’s the only game in town. If you want to get something done, this is the train to get on.
Nope. Reality check. If you look at the objective analysis, you’ll realize it won’t get the job done. That’s what people thought when they originally supported it. The truth is that, at best, would reduce emissions by 2% by 2020 according to the CBO analysis. But the more likely scenario is that because it allows offsets (which are impossible to regulate), it will allow actually emissions to get worse for decades while the same timing hurt our economy through higher and unpredictable energy prices. It will also drain dollars from the US and send them overseas for a questionable environmental benefit. That is a “double whammy:” hurts the environment, hurts the economy. A fee-and-dividend provides a “double dividend”: helps the economy, helps the environment. Unfortuately, people are locked into their position and the only way they can rationalize their continued support is to ignore the facts and hope that things will turn out better than all the unbiased analyses say. This is stupid when there is a superior alternative, fee-and-dividend, that has no downsides (other than a perception myth) that virtually everyone is saying is the superior solution including the CBO, Al Gore, Jim Hansen, the creators of cap-and-trade, economists, EPA regulators, and even Exxon Mobil.
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Myth #2: Fee-and-dividend will never pass. It’s a tax. There is no traction for this.
This is a self-perpetuating myth that is true only as long as people contine to believe it is true. The reality is that if properly positioned (see communication tools for making a carbon tax palatable to the public), a carbon fee and rebate is not only politically viable, but it is political suicide to oppose it, as the lawmakers in British Columbia now know.
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Myth #3: Fee-and-dividend is unfair. It will result in a net transfer of wealth from states that use a lot of coal for electricity to states that have a cleaner energy mix.
Senator Cantwell’s (D-WA) bill reserves 25% of the fee so that the government can even out regional disparities.
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Myth #4: It will unfairly hurt poor people because they pay a greater percentage of their income for energy prices.
Exactly the opposite is true. Percentages don’t matter. As long as rich people use more energy than poor people, poor people will always benefit from fee-and-dividend. Fee-and-dividend is the only solution that is progressive and will help the economy. Suppose we have two residents: a rich person and a poor person. The rich person makes $100K/yr and pays out $100 per year in the fee because he has a big house and a private jet. Our poor person makes $1,000/yr and pays $10 per year in the extra fee since the poor person uses less energy than the rich person. What happens is that each person gets a $55 rebate. So the poor person doesn’t pay more for energy under this plan…he actually makes money! So instead of paying out $10, the poor person  is now $45 a year richer. So the people who can least afford higher energy prices are always better off in a fee-and-dividend scheme.
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For the full, printable 15 page document, download here or read it at Steve’s new blog, here. I really do recommend that you take the time to read this. The full paper includes some key background material (including a quote from me!), a detailed list of 14 reasons why cap-and-trade is the wrong answer for controlling carbon emissions, another detailed list of 16 reasons why fee-and-dividend is favoured, 3 reasons why green groups aren’t supporting it (?!), and a lucid explanation as to why a shoddy alternative bill is currently being shoved through the US Senate and Congress.
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Digging into the BNC archives, you can read more about cap-and-trade vs carbon taxes here and here. For Jim Hansen’s argument for a fee-and-100%-dividend scheme, see here.

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