04/03/2009 05:12 am ET Updated May 25, 2011

Questions to Ask of New Climate Legislation

We can expect a new climate change proposal every couple of days over the next few weeks and months following President Obama's recent statement asking Congress to send him legislation that "places a market-based cap on carbon pollution and drives the production of more renewable energy in America." How should we evaluate the various proposals that come out? Each new proposal will be slightly different than the last, and each politician behind the podium will say that their proposal a) is based on the latest science, b) contains the most aggressive emission reduction target, c) does the least amount of harm to the economy, d) is the most likely to pass Congress, e) has the support of climate celebrities such as Al Gore, or f) all of the above.

What is the non-climate change expert to do? Here is a list of questions to ask to sift through the claims and exaggerations.

First, is it a regulation or a market mechanism? Regulations require certain actions by certain times. But critics note that they can be expensive and provoke industry backlash.

The alternative, market mechanisms, include carbon taxes and cap and trade systems. Here the details are very important. Carbon market mechanisms are complex, and many of their claims are untested. The words are also slippery. Many people call the tax a fee, and don't even say the words "cap and trade," preferring "cap and auction" or "cap and rebate" or other variations.

Here are a few questions to ask carbon tax proposals: Will the carbon tax raise coal prices by at least 50% and gasoline prices by over $1/gallon? If not, then the tax (or fee) is only meant to raise revenues for government programs or other uses, rather than actually reduce emissions. If the tax is high enough to really reduce emissions, then is there a plan to compensate or reimburse consumers (for example through a dividend)?

For cap and trade, which companies are regulated? Who sets the cap, and is it tight enough to cause real reductions from business-as-usual? Is there enough flexibility to tighten the cap if new science emerges? How are permits allocated: are they auctioned to companies, or given away for free to historic emitters? The European Emissions Trading System has shown that auctioning permits could avoid lobbying for special treatment and windfall profits for coal and energy companies. Will there be an escalating price floor on permits, meaning that permits will become increasingly expensive, incentivizing investments in low-carbon technologies?

There are many more questions about carbon market mechanisms, but perhaps the most important one is how is the revenue spent? Is it spent on renewable energy and transit? If so, what criteria are used to decide between solar, wind, energy efficiency, and transit projects? Will spending priorities be based on Washington DC's usual K Street lobbyist process, or will there be independent panels of experts? What are the expected outcomes of the program on low-income households? Is a significant portion of revenues devoted to equity concerns that would arise if fossil fuel costs rise, including dividends or rebates to consumers?

Each climate change proposal has the potential to split allies into feuding factions (such as carbon tax versus cap and trade, the topic of one of my previous posts.) The danger is that as former friends turn to foes, the fossil fuel lobby will use their public relations machine to derail action another year. Hopefully, the public will ask the right questions, and generate the discussions needed to improve the weaker proposals, and pass the best climate legislation possible.