The Economy | Reducing pollution, one gift at a time

Michael Vickerman's newlywed friends had all the cookware and linens they could use. So they were surprised and pleased when he presented them with a ton of sulfur dioxide.

"It was one of the more unusual wedding presents received that year," the Wisconsin-based environmentalist told me last week.

Of course, Vickerman didn't actually deliver a box of chemical gas - the stuff that comes out of power-plant smokestacks and causes acid rain.

Rather, he purchased what's called a pollution credit - a license to discharge sulfur dioxide into the atmosphere.

Since his friends didn't happen to own a power plant and had no plans to use their new permit, it represented a ton of pollution that would never be generated.

Anyone can do this, it turns out. For about $130, you can lower - by just a bit - the amount of junk that can legally be put into the air. Makes a nifty gift for your eco-conscious loved ones.

It's just a little byproduct of a system for dealing with pollution called cap-and-trade.

You may have heard the phrase before; the cap-and-trade system has helped cut acid rain since 1990, and it was used to get lead out of gasoline as far back as the 1980s.

Still, many Americans remain unfamiliar with the concept. That's liable to change this year. With Congress finally focusing on global warming, cap-and-trade systems are likely to be central to any legislation aimed at cutting down on carbon emissions.

So what's it all about? Unlike most direct forms of government regulation, the cap-and-trade method uses market incentives, both to stimulate innovation and to ease the transition for polluters as they clean up.

Take the case of sulfur dioxide. Rather than holding every smokestack owner to a uniform standard, Washington placed a cap on the overall amount of emissions it would allow from all sources. Then it distributed credits - permits to pollute - totaling no more than the cap.

Plants that cut their own pollution output were free to sell their credits to others, while those for whom a cleanup might be difficult or expensive could buy those same credits.

The market set the price. And the government could periodically retire or withdraw credits, making those that remained more expensive - and thus increasing the incentive to cut pollution.

Economists say a cap-and-trade approach can be both cheaper and more effective than alternative methods, such as uniform rules and big fines for violators. Professor Robert Stavins of Harvard believes we've saved about $1 billion a year cleaning up acid rain since the cap-and-trade system went into effect.

Could the same idea be the key to attacking global warming? Maybe, Stavins told me.

"No policy instrument is a panacea for all problems," he said. Cap and trade might not be an appropriate answer to very localized problems, such as a chemical plant leaking into nearby soil.

But when the impact is widespread - or global, as with climate-changing carbon emissions - cap-and-trade could well be the answer.

It already is in Europe. Trading in carbon emissions permits on a central exchange in Paris reached a record 31 million tons last year, with traders bidding from 5 to 15 euros a ton.

Similar notions are gaining steam in America. Last week, a coalition of energy and industrial corporations and environmental groups announced its support for a market-oriented anti-global-warming push. And several members of Congress have introduced bills to regulate carbon emissions using the cap-and-trade idea.

One appealing aspect, Stavins said, is that cap-and-trade doesn't involve directly raising taxes on business.

That could be why even the Bush administration, which hasn't been warm to regulating carbon emissions in the past, has signaled it might go along with a cap-and-trade system.

If so, who knows? By next Christmas, you might just be able to put a ton of carbon credits into your favorite environmentalist's stocking.

It certainly beats a lump of coal.