So it seems like the big deal these days, asides from the end(ish…) of the brouhaha that was the 2008 Democratic primary, is the Lieberman-Warner legislation (LW, as I affectionately refer to it). This bill calls for a cap-and-trade system, and the details have economic conservatives and environmentalists alike worked into a lather (incidentally, no one really anticipates that this bill will pass, but let’s not miss an opportunity to get worked up).

It’s my instinct that when extremists on both sides hate something, it’s on the right track. LW isn’t perfect, but the idea of a cap-and-trade system does have some serious street cred. It combines the merits of markets (Bill O’Reilly says: “Yea! I LOVE markets!”) with personal responsibility (don’t worry liberals, there’s something coming for you too) with, wait for it, helping the environment and revitalizing the economy.

Maybe that sounds a little pie in the sky to you (mmm… pie…), but hear me out. The problem with the current system is that technically, both everyone and no one own the sky. Industry argues that a certain amount of pollution is unavoidable, which may well be true, but there is also no cost to them to pollute lots in order to make more money. After all, their competitors are doing it too. Industry isn’t a bogeyman, it’s just that the incentives are all wrong, which is also why the market isn’t going to fix global warming on its own. Cap-and-trade systems alter these incentives by placing a monetary value on pollution. Put another way: make polluters pay for pollution and then the market will spur development of cleaner, cheaper technology.

But Diana, if the polluters have to pay for pollution, won’t they just pass those costs along to their customers?

That’s a fair point, and a legitimate concern. But the beauty of cap-and-trade systems, especially the type illustrated by Peter Barnes is that the money raised by auctioning off permits can be returned to consumers. In this way, people will be able to keep up with rising energy costs, and will also have capital to invest in weatherization or other measures that will keep down their energy bills in the long term. It’s actually a quite nifty trick.

There are a number of nuances to cap-and-trade that I have yet to go into. This is partly because I don’t want to abuse the attention span of my (rapidly growing!?!) readership (not to mention the attention span of the author). Also, if I answered all of your questions now, you wouldn’t have a reason to come back and read my blog again, would you? Feel free to comment on specific areas that you think I missed or am wrong about, and I’ll address those first. Later dudes.

-Diana