The demise of the Lieberman-Warner climate bill may not be a bad thing if it spurs environmentalists and politicians to ask: Is this the best way to cap carbon?

Let’s be clear what Lieberman-Warner was. Yes, it contained a carbon cap. But mostly it was about spending or giving away trillions of dollars. It was, as Sen. Bob Corker (R-Tenn.) put it, “the mother and father of all earmarks,” and every lobbyist in town was at the trough.

The bill sought to allocate a vast sum of money over 40 years — the exact amount is unknowable because it depends on future prices of securities (tradable carbon permits) that don’t yet exist. For each year between 2012 and 2050, the bill set the number of permits that would be issued, specified the percentages that would be given free to various entities or auctioned, and then divvied up the auction revenue in a similar manner. The result was a 492-page monstrosity that only a handful of Hill staffers and lobbyists fully understood. The rhyme or reason behind the various percentages, to the extent that there was any, was the need to garner 60 votes in the Senate. Barely mentioned in the frenzy was that the tab for all this largesse would be paid by consumers in the form of higher energy prices.

There’s another way to go: get a revenue-neutral carbon cap first and adopt other programs later. Such a stripped-down cap could be passed in the first 100 days of an Obama or McCain administration with bipartisan support. It would send a much-needed signal to markets, and show the rest of the world that the U.S. is serious about tackling climate change. The new president could then engage fully in the negotiations for a post-Kyoto treaty that are set to culminate in December 2009. And starting in 2010, we could fill in domestic policy gaps.

Lieberman-Warner Climate Graph

A revenue-neutral cap would cover all carbon entering the economy, auction all permits, and return the proceeds to every American equally, ideally as monthly dividends. To minimize overhead, dividends could be wired to people’s debit cards or bank accounts. Such a system would be simple, fair, and doable, and it would accomplish quite a lot.

Every American would understand this plan, and their dividends would cushion the higher energy prices they’d face. As carbon prices rise, so — automatically — would dividends. Families that conserve energy could come out ahead: The money they get back could exceed the higher prices they pay. This would make every family a partner in the effort to fight climate change.

To be sure, we’ll need public money to fight climate change. But some of that money can come from shifting current expenditures, and if we need more, we can raise and allocate it later. What we must do now is build the domestic and international frameworks for cutting carbon emissions. Once those frameworks are in place, much else will follow.

The Lieberman-Warner exercise will not have been wasted if it reminds us of three common-sense precepts:

  1. Put first things first.
  2. Keep it simple.
  3. Don’t take money from people unless we absolutely have to.

If we keep these lessons in mind, 2009 could be a very good year.