The most important part of any climate bill is that it manages to put a real, meaningful price on carbon emissions. In a carbon tax, that means setting the price high enough that there is an incentive to stop using carbon. In a cap and trade system, that means setting a rigid cap that steadily decreases. The cap being rigid is very important. Some systems have a cap, but release more permits when prices get high, which defeats the purpose of the cap. The House climate bill deals with this in a very nice way, in my opinion, by setting aside some of the permits at the start of the year, then releasing them if prices get high.
Another key point is what happens to the permits, are they auctioned off or given away. Auctioning them raises money that can be used to offset the increased energy costs lower income people will feel. Giving away the permits doesn’t raise any money in this way and also gives companies no incentive to reduce emissions before the program starts.
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