Editors' Summary

A revenue-neutral cap-and-trade program to address climate change might take one of two different forms: A "cap-and-dividend" approach auctions all allowances and returns the revenue to individuals on a per capita basis. A "fair-share cap and trade" distributes the allowances themselves to individuals. Individuals can then sell them to fossil fuel producers, who are required to hold allowances for the fuel they sell. Both schemes decouple the imposition of a price on carbon from the infliction of financial hardship on consumers, thereby diffusing the "cap-and-tax" argument. A fair-share capand-trade offers the additional benefit of reinforcing the emerging social norm of carbon footprint minimization, but it would also pose implementation challenges not raised by a cap-and-dividend approach.