In today's W$J, economist R. Glenn Hubbard, former Chairman of President Bush's Council of Economic Advisors, makes the case for a carbon emission trading scheme along the lines proposed by the National Commission on Energy Policy.

We do not know how much long-term climate change will result from our ever-expanding economic activity — primarily from the burning of fossil fuels — or how much climate change is "safe." To understand this from an economic perspective, we need a flexible, measured approach, one that continues to research the consequences of climate change and how we can avoid damage in the future. This approach would establish a policy architecture that sends appropriate signals to businesses and consumers in order to spur climate-saving innovations, while engaging both rich and poor nations in similar, cost-effective activities to reduce the threat of climate change throughout the world. . . .

. . . near-term actions should not impose greater risks than the problem they seek to address. MIT economist Richard Schmalensee, a member of the NCEP, once put forward a helpful analogy: If you smell smoke at home, it would be silly to do nothing until you actually see flames, but you also should not hose down the house after one whiff of what might be smoke.

For the global warming debate, uncertainty justifies neither inaction nor over-reaction. As the smoke analogy suggests, the United States should pursue a moderate policy that can be justified as we learn more about the threat of climate change and the costs of alternative responses.

The NCEP proposal meets this test of taking serious action while not imposing economic risks greater than the threat of climate change itself. It comprehensively addresses all U.S. emission of CO2 and other climate change-related gases. It does this using one system: tradable permits. In such a system, the use of coal, oil and natural gas will require permits in proportion to their CO2 emissions, typically sold along with the fuel — so individuals need not deal with the permit market.

Those businesses and individuals who can reduce their fuel use and emissions most inexpensively will do so. Those who cannot will end up purchasing more permits and supporting those who can. In this way, the program flexibly encourages the least-expensive efforts to reduce emissions without constraining any individual or business. And revenue from the auction of a portion of these permits could be used to reduce the corporate income tax, blunting adverse economic consequences.

This approach, Hubbard argues, will help control emissions "without betting the bank." Can the same be said for any legislation likely to pass this (or any) Congress?