I’m not sure I qualify as a cap-and-dividend advocate — I’m mostly an advocate of not feeling the need to rank every flavor of carbon policy, whose heavily negotiated fate rests in the hands of our brave, capable legislators — but I at least qualify as a fan. If I were king, my carbon edict would either be cap-and-dividend or some similar revenue-neutral carbon tax.

So here are some thoughts in response to David’s question.

Things that are worth funding are worth funding, regardless of funding source.

The question is: should we build a smart grid given a cost of X? Not: should we build a smart grid provided we can find a source of thematically linked revenue?

A spending program either makes sense or it doesn’t, given everything we know about society’s level of wealth, competing priorities, expected costs, and expected benefits. If the program doesn’t pencil out, it doesn’t make sense to do regardless of whether the cash is on hand. And if it does pencil out, then let the appropriation process sort itself out as it normally does.

This logic is often easier to grasp for dubious ideas than for good ones. I recall an advocate of “vertical farms” arguing that if we can afford $700 billion for a financial bailout, than surely we can toss $2 billion toward building a prototype tomato skyscraper. But the appropriate amount of public money to spend on this idea is closer to $0 — it doesn’t make a bit of difference whether we can afford the outlay (private investors, of course, can spend all they want on this idea).

Policy advocates love to link revenue source to pet project: congestion pricing should fund public transport; parking pricing should fund walkable communities; cigarette taxes should fund giant billboards with pictures of diseased lungs. Sometimes these linkages make sense (I think congestion pricing and public transport do go very well together, purely for policy reasons), and sometimes they make good politics. But just as often they smack of gimmickry, or result in misallocation of funds.

Speaking of which: if funds raised from auctioned pollution permits are set aside in a special pool, they will be misallocated. Horribly so. Some fraction of the money will be spent well, and most will be squandered. For reasons of both fairness and efficiency, I’d rather see it handed out to citizens, who can then be encouraged to spend it on further greenhouse reductions through supporting policies such as efficiency standards, carbon pricing, specialized incentives like loans or feebates, etc. (Or they can spend it on new Hummers — it’s a free country.) Meanwhile, worthy public infrastructure projects can go through the usual appropriations process.

It isn’t the job of policy advocates to balance the federal budget.

This is basically a restatement of above, but it bears pointing out that most advocacy groups don’t seem to feel the need to square the ledger whenever they make a proposal, and environmentalists don’t get a gold star for doing so. Someone who wants a new weapons system, or a prescription drug benefit, or a repeal of the estate tax typically makes very little effort to grapple with the effect on the deficit, except maybe in the most cursory or dishonest way.

One can certainly argue that this isn’t a great feature of our political system, but nevertheless I don’t see why environmentalists bear some special responsibility here. A smart grid costs money? OK, raise taxes. Cut spending elsewhere. Problem solved.

Again, I’m not suggesting costs and benefits don’t matter — they are paramount. Rather, costs, benefits, and funding are somewhat separate matters, and society can wrestle with the question of the appropriate level of taxation on another day.

The political benefit of C&D lies in the possibility of a higher carbon price.

Switching gears here, but this is important. David says:

One of the principle benefits of C&D, according to its backers, is that it’s politically viable. Voters can understand it; if it’s clear to them that they’ll be more-than-compensated for rising energy costs, they’ll support it. The broad support of ordinary voters will be enough to overcome the concerted resistance of fossil fuel and other industries.

Although this argument has some merit, I come at the question very differently. My hope is that in the long term C&D will create a large popular constituency that is jealous of its C&D rebates and is therefore willing to tolerate a higher carbon price.

I think a lot of observers tend to miss the fact that the fundamental political battle is over price. When countries and industries get together in Poland to engage in a frenzy of lobbying, negotiations, special pleading, handouts, and loopholes, everyone screams about “gaming” and “carbon traders” and “windfall profits” and what-have-you. And though the specific criticisms may have merit, they tend to obscure the larger fact that the fundamental argument is over who pays and how much. That argument has little to do with the specific form of the carbon pricing scheme (by far the oddest delusion of carbon tax advocates is that this battle will melt away if only their policy is enacted).

So the argument over price will continue regardless of how cleverly we design our carbon pricing program, and in fact the biggest wildcard in the, well, future of humanity is whether our ingenuity can deliver emissions reductions at a price society is willing to bear. Lots of factors affect that price. For example, if an ice sheet collapsed tomorrow and submerged Florida, the price we’re willing to pay would go up.

My belief is that a rebate scheme like C&D will increase the price we are willing to bear, and therefore increase the likelihood that we can deliver the changes necessary to wean ourselves off fossil fuels in time to stave off the worst effects of climate change.

All that said, I admit there’s an ideological flavor to these arguments that may not bear up to the brute math of infrastructure spending. Maybe we really can’t get what we need without identifying a specific funding source. Nevertheless, we end up back where we started: everything inch of this thing will be heavily negotiated by politicians, and C&D seems like a pretty good place to start the discussion.