James Booth, Toronto

In his post-election news conference last week, President Obama all but declared cap-and-trade dead: “There are a lot of Republicans that ran against the energy bill that passed in the House last year. And so it’s doubtful that you could get the votes to pass that through the House this year or next year or the year after.”

Despite the gloom and doom, I remain optimistic that we can put a price on carbon that speeds the transition to clean energy, thereby lowering the level of greenhouse gases that cause climate change.

How can we do this with Republicans in charge of the House, given that only a handful of them voted for last year’s bill?

By coming up with a solution that does not conflict with core beliefs of the GOP. Specifically: Don’t raise people’s taxes and don’t increase the size of government.

Cap-and-trade ran afoul of both these tenets. It would have raised the cost of energy for consumers, becoming a “hidden tax.” It would have collected massive amounts of revenue to be doled out for legislators’ pet projects, and it would have established a huge bureaucracy to monitor carbon emissions and regulate a carbon trading market.

But there’s a different approach that can get the job done more effectively and remain consistent with Republican values. It goes like this:

Place a fee (Go ahead. Call it a tax.) on carbon at the source — the mine, well or port of entry. Increase that fee gradually so that clean energy becomes competitive with fossil fuels within a decade. Now here’s the part that the GOP will love and some Democrats will hate: Take the revenue from that carbon fee and give it all back to the American people, every single dime, preferably in the form of monthly payments.

Won’t that raise the cost of energy? Won’t people’s electric bills go up? Yes, that’s what it’s designed to do — increase the cost of energy produced by fossil fuels. And that’s why we give the revenue back to every household — so that people can afford the energy they need.

“[T]here is no readily apparent alternative [to cap-and-trade] that would be any easier politically. It is difficult to imagine a globally harmonized carbon tax.”

This is dreadfully wrong, both substantively and politically.

Mr. Gore’s substantive error lies in presuming that a cap-based approach could be harmonized globally. Perhaps this is a legacy of his having championed cap-and-trade in the 1997 negotiations that produced the Kyoto Protocol. Yet now, as then, there are no clear grounds for translating a possible U.S. cap on carbon emissions into limits for other countries. Per capita, Americans generate 4 times as much greenhouse gases as Chinese and 14 times as much as Indians. Why, then, should a U.S. commitment to reduce emissions by, say, 2 percent a year, carry any moral authority in China or India? Indeed, India’s per capita emissions could increase by 2 percent a year for more than 60 years and still not match U.S. emissions declining at the same rate.

A carbon tax, in contrast, is wholly fungible across borders. A fee that raises the price of coal or natural gas by so much in one country will do the same in another. If one country is more efficient in turning energy into goods and services, or enjoys a greater abundance of carbon-free water- or wind-power, then that is an incentive to other nations to step up their efforts and achieve parity. A carbon tax thus creates no unfair comparative advantage. While these facts can’t guarantee global harmonization of a carbon tax, they provide a strong basis for it.

Politically, Mr. Gore’s dogged support of cap-and-trade sounds tone-deaf. The financial crisis hasn’t merely shaken the world’s confidence in market-based solutions; it has provoked a profound revulsion among Americans against financial speculation, market manipulation and legislative complexity. Yet all of these are intrinsic to cap-and-trade systems built on trillion-dollar markets in volatile emission permits. It is this political reaction, even more than media-driven denial of climate science, that has turned Congress against cap-and-trade. Mr. Gore underestimates its staying power at his own risk.

There is an alternative to both cap-and-trade and inaction, and it is the very instrument that Al Gore bravely backed for almost two decades: a carbon tax. This is not a market-based approach to be administered by Wall Street insiders, but an incentives-based one applied to all fossil fuels by the U.S. Government. With the revenues redistributed to Americans as monthly carbon checks and the tax rebranded as a carbon fee—as proposed by Mr. Gore’s climate mentor, climatologist James Hansen—a carbon “fee-and-dividend” would be everything cap-and-trade cannot: simple, transparent, effective and, above all, equitable.

With fee-and-dividend, a majority of us would get back in dividends more than we would pay in the tax, and all Americans would have equal incentives to transition to low-carbon ways of life. Industry would have what it needs to steer the transition: clear, unmistakable price signals to drive investment from dirty coal and imported oil to clean energy and green jobs.

“But now comes a new idea, or at least an amalgam of old ideas that makes it seem new, and this might break the logjam in Congress. Properly studied and adapted to different circumstances, it could provide a jolt of new thinking for the Harper government, assuming this government wishes to do any thinking about a subject it dislikes.

The idea, from Democratic Senator Maria Cantwell of the state of Washington, is for a cap-and-dividend system, whereby an annual cap would be placed on emissions from coal, oil and natural gas sources. The cap would gradually fall each year. The permits to pollute would be traded, with a fixed price known in advance.

The bulk of the revenue from the yearly auction, however, would be returned to consumers to compensate them – and, in some cases, to overcompensate them – for the higher prices that fuel companies would pass on after buying the polluting credits.

Seventy-five per cent of the yearly revenues would be sent to consumers, with a family of four receiving $1,000. The rest would be placed in a trust fund to be spent on further emissions reductions, technology research and development.

You can easily see the potential political attractiveness of the cap-and-dividend scheme, in that families would get a cheque in the mail every year – something the Harper government already does with its family credit that is laughably supposed to be a child-care policy. You can see another attractive angle, in that the cap-and-dividend scheme targets only upstream polluters.”

A carbon-use dividend for everybody must replace the old, ineffectual ‘cap-and-trade’ scheme

Last weekend’s minimalist Copenhagen global climate accord provides a great opportunity. The old deceitful, ineffectual approach is severely wounded and must die. Now there is a chance for the world to get on to an honest, effective path to an agreement.

The centrepiece of the old approach was a “cap-and-trade” scheme, festooned with offsets and bribes – bribes that purportedly, but hardly, reduced carbon emissions. It was analogous to the indulgences scheme of the Middle Ages, whereby sinners paid the Church for forgiveness.

In today’s indulgences the sinners, developed countries, buy off developing countries by paying for “offsets” to their own emissions and providing reparation money for adaptation to climate change. But such hush money won’t work. Yes, some developing country leaders salivated over the proffered $100 billion per year. But by buying in, they would cheat their children and ours. Besides, even the $100 billion hush money is fugacious. The US, based on its proportion of the fossil fuel carbon in the air today, would owe $27 billion per year. Chance of Congress providing that: dead zero. Maybe the UK will cough up its $6 billion per year and Germany its $7 billion per year. But who will collect Russia’s $7 billion per year?

Most purchased “offsets” to fossil fuel carbon dioxide emissions are hokey. But there is no need to flagellate the details of this modern indulgences scheme. Science provides an unambiguous fact that our leaders continue to ignore: carbon dioxide from fossil fuel burning remains in the climate system for millennia. The only solution is to move promptly to a clean energy future.

Americans have an average carbon footprint of 24 tons per year. As a thought experiment, imagine I offered you the following deal: every year, I’ll charge you $2,000 per ton of your personal emissions. I’ll also offer you a guaranteed $48,000 annual rebate. Would you take the deal?

I bet most Americans would. Think about the behavioral changes that would follow. Every gallon of gas now costs you about $20. Of course, you’ll be able to afford it because I’m handing you a huge check every year. But that Prius is starting to look a lot more attractive, to say nothing of your bicycle. A single cross-country flight is now going to set you back about $2,500. Again, you can swing the expense. But is there something else you’d rather spend $2,500 on? Maybe it’s really important for you to spend Christmas with your family. Or maybe you can send them an e-card.

This is one reason for which a tax and dividend system is attractive. It doesn’t eliminate ordinary tax revenue, so it isn’t problematic that the total revenues will fall over time as per capita greenhouse gas emissions do.