What's This in the Budget? Cap and Dividend?

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I've been increasingly enthused about the idea of "cap and dividend" climate change legislation. In short, a cap and dividend policy would first set a national limit on greenhouse gas emissions. Let's say it's 100 units. Then you create 100 permits that allow for 1 unit of pollution each. Then you auction off those permits and anyone who wants to pollute can bid. Finally, you take that money and give it back to the people. The government can adjust the amount of pollution by adjusting the number of permits. For a more detailed description, read Ben Jervey's primer.In his State of the Union address Obama talked about his support for "comprehensive energy and climate legislation." Most people think he's talking about "cap and trade." But this little footnote in his new budget makes it look like he may have something more like "cap and dividend" in mind:

A comprehensive market-based climate change policy will be deficit neutral because proceeds from emissions allowances will be used to compensate vulnerable families, communities, and businesses during the transition to a clean energy economy. Receipts will also be reserved for investments to reduce greenhouse gas emissions, including support of clean energy technologies, and in adapting to the impacts of climate change, both domestically and in developing countries.

The fight to put a price on carbon isn't going to be easy. And it's not clear Obama can win. Giving the money back to the people not only makes sense philosophically (it is, after all, the public air being auctioned off) but it also makes a pollution cap much more politically palatable.The more evenly it's distributed the better. If Obama could give everyone a check from the carbon permit auctions, that might be ideal from a marketing perspective and would also be a fair way of helping people offset whatever price increases the cap causes. And with estimates for permit sales up in the $600 billion range, each taxpayer could get $1,000 and there would still be money left over.Photo (cc) from Flickr user Gerald Simmons.