Is This Green Enough?

Here's how cap-and-trade works. The government gives companies allowances -- that is, permits to emit greenhouse gases -- based on their past emissions, but set at lower levels than in the past (this is the "cap" part). Companies can then simply cut their emissions levels, or buy allowances from more efficient companies in order to let a less green firm keep spewing greenhouse gases (this is the "trade"). They can also buy extra allowances at government auctions.

Another wrinkle: Firms running over their greenhouse-gas quotas can also buy "offset credits," pouring money into fume-cutting companies or projects in the developing world in order to compensate for the firm's own excess polluting at home. (It's a bit like buying absolution.) The underlying premise is that it doesn't much matter whether emissions are cut in Cleveland or Beijing, just that they're reduced overall. As time goes on, the government would give away fewer allowances and auction off more, creating a vast revenue stream (and, potentially, a huge pork barrel). By 2050, if all went according to plan, U.S. emissions would be 71 percent below their 2005 levels.

This sounds pretty complicated. For those who remember the Cold War, cap-and-trade can feel a little like Gosplan, the central planning board that oversaw the Soviet economy -- only with good intentions, as well as vigorous input from many conservatives and corporate executives who consider the cap-and-trade legislation the best deal they can get.

No one can say exactly how much the proposed system would cost consumers or industries. That might actually help its chances in Congress. It's a harder target to assail than a straightforward tax on carbon emissions -- an option favored by many economists but virtually no politicians.

Still, supporters of the Lieberman-Warner bill fear that ads from its foes will do to cap-and-trade what the famous "Harry and Louise" campaign did to the health care reforms proposed early in the Clinton administration. (Remember those ads, with the fictional couple fretting that Clinton was creating a Brobdingnagian new bureaucracy?)

But some sort of cap-and-trade system has a genuine shot, in large part because the partisan lines on climate change are far more blurred than they ever were over the Clinton health care initiative. All three remaining presidential candidates support the cap-and-trade approach. Sen. John McCain (R-Ariz.) even co-sponsored two earlier versions with Lieberman, although both were defeated. Moreover, a lot of the country's leading industrialists, utility executives, technology pioneers and financiers are lining up to promote the Lieberman-Warner bill. And last week, President Bush, a longtime foe of cap-and-trade, said he might accept some kind of plan that covers utilities only.

But if a new U.S. political consensus is emerging about the need to do something about climate change, the major stumbling block to legislation is still its potential cost.

Any cap-and-trade system would raise the price of many common purchases, from plastic bottles to tanks of gas, by upping the cost of anything containing carbon. One U.S. government study says that Lieberman-Warner would add about 35 cents a gallon to gasoline prices in 2030 -- about the same amount that prices have risen in the past two white-knuckle months. The Energy Information Administration, the analysis wing of the Energy Department, estimates that the bill would mean the loss of 60,000 jobs by 2030, out of a total workforce of 170 million, since some energy-intensive businesses would relocate to countries that won't cap their greenhouse-gas levels.

On the other hand, environmentalists say that Lieberman-Warner could prove much cheaper than expected. Companies innovate when there's an economic incentive to do so, they argue, so good old-fashioned capitalist logic should drive them to find greener, cheaper ways to produce their products while spewing less carbon dioxide. Exhibit A here is a rather similar cap-and-trade regime for sulfur dioxide that was designed to reduce acid-rain emissions. That system achieved its target reductions at much lower costs than expected -- and became the model for climate activists. Those activists also suggest that the drive to find greener technologies would pay as yet unforeseen economic dividends, driving productivity gains in much the same way that mass production, semiconductors and the Internet did in other eras of transformation.

The cost of cap-and-trade legislation will have a lot to do with whether carbon dioxide from coal plants can be captured and stored underground so it won't leak out into the atmosphere -- something that isn't being done on a commercial basis anywhere in the world. So will it work? Will we be able to attach capture facilities to existing plants, or will they be limited to new plants? Former CIA chief John Deutsch, now a professor at the Massachusetts Institute of Technology, estimates that if the government-set cost of belching forth a ton of carbon were more than $30, industrialists would have ample incentive to capture and bury their emissions.

If Big Coal has its way, though, the country will dismiss cap-and-trade as too expensive, both because of higher prices and lost jobs. (The mining industry pegs the overall cost of Lieberman-Warner at $5.3 trillion over 40 years.) So what's the alternative? Bush and the major coal companies argue that the United States should put money into research and development instead, in hopes of finding greener ways to run the economy and thereby cut emissions.

This approach is clearly in the interest of the coal companies. But it has also been given new intellectual heft by two former strategists for environmental groups, Ted Nordhaus and Michael Shellenberger, whose recent book "Breakthrough" made the case for a government-led R&D push far bigger than anything Bush has suggested. (Think the Apollo program, only bigger.) To R&D advocates, the sheer magnitude of the reductions that climatologists say are needed points toward the search for a machina ex deus, so to speak.