EPA

FOR those who believe that climate change is a serious problem, the decisions that America makes now are of momentous importance. In Copenhagen in December, the world will decide whether to reinvigorate or abandon its effort to avert serious climate change, and what America does between now and then will in large part determine the outcome. So the fact that Barack Obama clearly intends to turn America from being a laggard into a leader in this task is therefore encouraging.

Good intentions, however, are not enough. Moves in Washington over the past week have indicated the shape of America's policy. And although impressively far-sighted by the standards of the Bush era, it looks disappointing when measured alongside what is probably needed to insure against the real-though-hard-to-quantify threat of serious climate change.

A price that pinches

“Oil lost and coal won,” was an insider's verdict on the two big developments in Washington this week (see article). The oil industry got hit by the administration's decision to tighten vehicle fuel-efficiency standards. Though hardly punishing by international measures—China has already adopted similar targets—the new rules will at least bring America within hailing distance of Europe's fuel-efficiency standards.

If America insists on using fuel-efficiency standards to cut vehicle emissions, then tough ones are better than weak ones. Yet such standards are a poor way of reducing emissions. They discourage companies from innovating and encourage them to game the system. The existence of different standards for cars and light trucks—an anomaly that continues—encouraged the rush into pickups and SUVs, overproduction of which ultimately helped sink America's car industry.

Far better to have a carbon price high enough to pinch, and then let companies and consumers decide where to cut emissions. But that, unfortunately, is unlikely to emerge from the cap-and-trade bill now in the House of Representatives, the details of which have been revealed by its promoters, Henry Waxman and Edward Markey. They have, it seems, granted some rather generous concessions to Midwestern Democrats from states dependent on coal or heavy industry.

As a result the bill is now too weak in three crucial ways. First, it envisages America cutting carbon-dioxide emissions by 17% below 2005 levels by 2020 (down from 20% in the original draft). Europe, by contrast, is aiming to cut its emissions by 20% below 1990 levels by 2020 (and by 30%, if the rest of the world makes similarly serious efforts). Second, the purpose of a cap-and-trade system is to introduce a carbon price. But the bill sets a ceiling of $28 a tonne on the price of carbon—too low to change behaviour enough.

Third, under a cap-and-trade system, the government issues permits to pollute. The administration had wanted 100% of permits to be auctioned, but the bill would hand most of them out free (a third to electricity companies, which is nice for coal; only 2% to oil companies). When that happened in Europe, power-generation companies passed the cost of buying permits on to consumers and pocketed the value of the ones they had been given free. In order to avoid such an outcome, the bill specifies that the value of free permits must be passed on to consumers. But if consumers are protected from price increases, they will have no incentive to cut back on carbon consumption—which is one of the goals of the scheme.

The weakening of this bill illustrates one of the central problems with cap-and-trade systems. They are complex, obscure and therefore susceptible to horse-trading. A chunk of allowances can be handed out to one lobby, a sliver to another, and soon the system's effectiveness has been sliced away. The corresponding attraction of a carbon tax, which this newspaper has always supported, is its simplicity. The government sets the rate. Everybody can see what it is. Voters get transparency. Businesses get certainty. And the government gets a large chunk of revenue—not to be sniffed at in these difficult times.

This is an important moment. Thanks to much effort on the part of many well-intentioned people, America is prepared to legislate to control carbon. The country needs to seize this opportunity and introduce a simple carbon tax. Sceptics will howl about the initial cost, but it will be transparent and far, far cheaper than the impact of serious climate change.