A cap-and-trade plan would create a huge new market in emissions permits at a time when Wall Street and Washington have their hands full figuring out how to police existing markets. One key element in all the climate proposals floated so far is the use of “offsets,” or the ability to purchase emissions reductions made somewhere else. As Friends of the Earth says in a new report, “Subprime Carbon”:

Given the lack of proven mechanisms to govern commodities, it is imprudent to so hastily create the largest derivatives market in the world and foist it upon a new and untested regulatory regime.

One possible side effect of the financial-market fallout and concerns about more toxic assets? Growing support for a straight carbon tax, rather than a complicated cap-and-trade plan.

Several of the groups testifying Thursday before the House Ways and Means Committee, including the Center for Clean Air Policy, called for putting “training wheels”** on the cap-and-trade plan by carefully managing the price for carbon permits in the early years of the program. That’s just one step removed from setting a carbon price, period—with a carbon tax.

**http://waysandmeans.house.gov/media/pdf/111/whitesell.pdf