Talk about mind readers

A company with high emissions, say a coal-fired power plant, would buy permits to emit CO2 as it invests in cleaner technology in preparation for lower caps. A company that emits less carbon could sell some of its permits, rewarding clean operation. In theory, overall emissions are reduced, while leaving companies free to devise their own strategies for playing the cap-and-trade game.

In practice, however, the details are tricky for both government and business, as experienced by the European Union since 2005 with its cap-and-trade plan.

Industry lobbyists were able to punch loopholes in the EU's complex system. The EU ended up handing out far too many free permits: Their value plummeted from more than $30 a ton to about $1 last year, hurting the incentive. In industries that were hit by caps, many moved production outside the EU, taking their polluting ways with them.

The next round of EU permits, issued for 2008 to 2012, may close loopholes and better judge the trading marketplace. But it took the EU decades to agree to launch its euro currency and build trust in its value. The global-warming fight can't wait that long to work the kinks out of a cap-and-trade system.

Tomorrow, the Monitor's View will look at a simpler, better way to cut emissions: a carbon tax.

Looking forward to tomorrow's article.