Cap and trade. I think it's a big joke. In any system that encourages selling of credits, I think you're going to get a lot of players that circumvent the system in some novel way. The fact that the proposed bill on the table gives away up to 85% of the credits, with the remaining 15% to be bid on ((Friedman, Thomas. Hot, Flat and Crowded, p313)), is really a cop-out. Not to mention that a cap'n'trade system doesn't necessarily mean actual reductions in emissions. The EU's experience is vital here ((Ibid, p311)). Inherently, a cap'n'trade system is hard to implement and enforce, and is open to a lot of loopholes on the enforcement side (much like any other industry that requires government oversight) ((Ibid)). Instead, I think a better solution to put a price on carbon is a progressive carbon tax. With such taxation, you can simply audit a company with a third party auditor, get a better idea of what they emit, and put a price on it. With a high baseline tax, and progression from there for heavily polluters, it would be a really good market mechanism to encourage the market to transition from fossil fuels to clean fuels.
Implementation could itself be progressive, to ease the burden on citizens and business. Start with a nominal baseline rate (to be determined by economists) and increase the baseline by x% every year, adjusting the progressive tax curve. I think the baseline and incremental tax % have to be strong enough to send a signal that dirty fuel is too expensive to maintain. It's about damn time we pay the full price of what we emit.
I think once a carbon tax is implemented and people have gotten used to it, we can introduce a cap'n'trade system on top of it to encourage even more innovation. The tax revenue goes towards research, or the tax payers. You know, tax rebates to help with gas prices, or maybe to fund the research to get us out of the hole.
Bubbles are bad for our pocket books when they end, but they're great for investment in a singular field. We need investment and innovation to be poured into the clean energy sector of the market. If the "green" bubble burst at the end of the day (and it will), we'll be left with a legacy of efficient, renewable energy to power the next growth market. Wouldn't that be worth the pain of more expensive gas? We pay more for gas so that our children can actually live.
Wouldn't that be novel?