Congress and the Administration are debating major changes on climate change, air quality standards, and retail energy competition that could fundamentally alter energy use. But largely missing from the discussion thus far is a clear assessment of how these pieces fit together. Energy prices could rise to pay for measures to combat global warming and achieve new air quality standards, or they could fall if Congress approves the President's proposed new tax credits for clean-burning, energy efficient cars and power plants. Prices could fall as utilities begin to compete in retail energy markets, or they could rise as government reduces subsidies and regulation. There is no telling how these cross-cutting economic pressures will affect each other.

Fortunately, we have a way to create a sound economic framework for reducing pollution. It's called emissions trading. The idea is simple: Government sets a cap on emissions, then gives out or auctions emission "allowances" to power plants, factories, and other producers of greenhouse gases. If a factory emits more gas than its allowances permit, it must either find ways to cut its emissions or buy allowances from those who have extra to sell.

Emissions trading is currently being used in the successful effort to combat the sulfur dioxide (SO2) emissions that cause acid rain. Thanks to this market tool, the actual cost of reducing sulfur dioxide emissions is less than half of the $500-$1000 per ton estimated by various parties in 1990 when the program was enacted.

Emissions trading works because it spurs technological innovation, which in turn is the key to reconciling the goals of pollution reduction and economic growth. An emissions trading market for greenhouse gases will stimulate innovation and pull new products and services into the marketplace in ways that traditional top-down regulation cannot. To plan investments in energy efficiency and fuel switching, businesses need to understand as soon as possible what the ground rules will be for trading. If the federal government and the states fail to implement broad-scale emissions trading, consumers will pay more than necessary for energy, and get fewer environmental benefits along the way.

The current U.S. position is to delay the opening of a domestic emissions trading market for 10 years, and allow voluntary measures and technologies to advance. But, in reality, this delay will slow the introduction of new technologies, as businesses wait to see the regulatory framework they will have to work within.

Besides, delaying emissions trading is not the only way to get a better handle on how it would actually work. We suggest the Administration's Climate Change Task Force organize a computer-assisted demonstration of emissions trading for greenhouse gases.

A computer exercise could simulate, say, 30 years of market activity. The model could track changes in emissions over time as trades occurred, while keeping track of costs to industry, utilities, government, and regions. The most striking advantage of such a demonstration is that it carries no "real world" costs, but offers considerable real world insights into how to make greenhouse gas emissions trading actually work. Further, the process itself contributes to consensus building and better regulatory designs. This technique was pioneered by environmental systems analyst Dan Sheer and has been used successfully to resolve several complex regional water management conflicts. Let's try it.