There’s four simple steps to how it works:
1. Count total greenhouse-gas emissions for the nation as a whole.
We would simply track fossil fuels at the points where they enter the economy: the pipeline or oil tanker or coal field. (As a nation, we currently emit 6 billion tons of CO2 a year from fossil fuels.)
2. Set a cap.
The emissions in the pollution permits must add up to no more than each years total Cap. Decide how much overall carbon emission is permissible for the year and require a permit for each ton of carbon dioxide emitted by upstream wholesalers or suppliers of fossil fuels. The Congressional Budget Office has found that this would affect only 7,400 US companies. Individuals and most businesses are not affected.
3. Distribute permits.
Permits can be valid for a single year, or for a multi-year period. One method for distributing them is auctioning; another is to give them away free on the basis of past emissions (“grandfathering”), past energy sales, or some other criterion. Permit holders can buy and sell allowances among themselves through auctions that determine the price of the permit. That’s the “trade” part.
4. Step it down.
Each year, distribute fewer emissions permits, on a predictable, published schedule that takes us to our targets. The gradual nature of this transition maximizes choice and flexibility in a way that narrowly targeted climate policies cannot match.
Then the market, left to itself, should gradually create more renewable energy to replace the fossil energy.
While price signals travel downstream through the economy to other businesses and to consumers, low income consumers are protected from the price rise by free permits.
This allows businesses and families to step down, stair by stair, at a pace that is safe and manageable with time to adjust through fuel efficiency and increasing renewable power like solar and wind power.
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