I was out of pocket yesterday and couldn't comment on the big draft energy bill released by Henry Waxman and Ed Markey in the House (summary here). But it's a major deal, even if only a first step. The cap-and-trade portions of the draft bill are incredibly ambitious, covering 85 percent of the economy's carbon pollution—from electric utilities to oil companies to large industrial sources, leaving out only smaller entities. The legislation would aim to cut U.S. greenhouse-gas emissions 3 percent below 2005 levels by 2012, 20 percent by 2020, and 83 percent by 2050. That's slightly more stringent than what Obama has proposed, though not quite as steep as what the IPCC has called for to avoid drastic climate impacts.

One critical question is how the pollution permits are distributed. Obama wanted all the permits auctioned off—making the system akin to a carbon tax, whose proceeds would be rebated to consumers. Markey and Waxman punted on this issue, though they're reportedly planning to lay aside 15 percent of allowances to dole out for free to energy-intensive industries like aluminum, cement, and glass that may struggle to compete internationally if they have to pay for all of their pollution allowances upfront. (Giving out permits for free still raises the price of carbon; it just means that companies get to reap that price increase, not the government.) The EPA will also have a "strategic reserve" of allowances that it can release if carbon prices rise faster than expected.

Also interesting: In order to compensate for trade disparities, the bill would allow certain industries to receive additional subsidies, so that, say, U.S. cement companies don't all flee to China, where they can pollute 'till they (or we) drop. The bill would also let the president slap down a carbon tariff on imports if these subsidies aren't doing the trick. I have mixed feelings about this whole "border adjustment tax" idea—as noted here, it's a nice way to spark a brutal trade war with China that would leave everyone worse off. Still, it's not a bad option to keep handy, just in case our trade partners refuse to tackle their emissions after we've acted. Several experts have told me that China is taking global warming seriously in part because they're worried about suffering trade retaliation—so why not keep up that friendly pressure?

Meanwhile, Joe Romm hones in on the most troubling part of the bill: The cap-and-trade regime would allow companies to increase their emissions above their alloted level if they "offset" it with reductions elsewhere, say, by planting trees. As I've often noted, many carbon offsets are extremely dubious—companies frequently fund projects that would have happened anyway, such as methane capture at landfills. Theoretically, offsets could be a cheap way of meeting emissions targets, but regulators need to make sure the offset reductions are real, and I'm not convinced that's doable. Note that the bill allows two billion tons worth of offsets—as Greenpeace points out, if they all get used, the cap's emissions targets could be met for 20 years without anyone needing to reduce their fossil-fuel consumption. This needs to be watched very closely so that it doesn't turn into a debacle.

Three other things of note: Lots of money for coal research. Also, we still don't know how much of the money raised through the permit auctions will be rebated back to consumers, so as to cushion the blow of higher fossil-fuel prices. That gets a big "TBD" in the draft bill. It's also interesting that Waxman and Markey decided to make this a big omnibus measure—with cap and trade plus a renewable-power requirement for utilities plus no-brainer efficiency incentives plus low-carbon transportation fuel standards, plus... There's an ongoing argument about whether Congress should try to split these items up, and pass them incrementally, or lump them all together and put them up for one big do-or-die vote. I go back and forth on what the best political strategy for Democrats is here, but it's something to note. Pelosi wants the whole thing passed through the House by July. But everyone knows the Senate's where the real gladiatorial combat occurs.

--Bradford Plumer