Instead of placing sketchy bets with public money, the next administration might consider a few suggestions:

First, Subsidies: To start leveling the field, phase out and eliminate subsidies and tax breaks for oil companies (begin there; coal comes later). The subsidies were established – and meant to be temporary – in an era when that industry needed help. Oil now gets larger tax incentives relative to its size than any other U.S. industry. It’s time to roll them back, not escalate subsidies for alternative fuels in a multi-front bidding war.

Don’t shift subsidies from fossil fuels to the wide range of alternatives contending for market share. That will be impossibly politicized and ultimately ineffective. Argue from both principle and pragmatism to eliminate energy subsidies entirely. Investors will be relieved of a singular uncertainty (“Will we get this break next year?”) that plagues decision-making, given continually moving prices.

Second, Emissions: Set an aggressive but achievable national target capping carbon emissions for 2012, not just 2050. Then create a market for tradable permits for CO2 emissions, the way we did for sulfur dioxide in 1990. (Remember acid rain? It’s gone.) Don’t give those permits away to select industries like party favors, the way Europe initially did.A market spares government the impossibly political task of “pricing” carbon, which a carbon tax would require, and would demonstrate real progress quickly.

Third, Gas prices: Put a tax floor under gas prices to keep them at around $3 per gallon, to keep the market focused on fuel efficiency, and provide means-tested vouchers for rural and low-income families. Use the resulting revenue to subsidize consumers for the purchase of alternative energy and efficiency measures that rise to a reasonable, verifiable standard. Rather than subsidizing one industry or technology over another, which burns public money and enriches lobbyists, let the customer decide.

Fourth, Proceeds: Return the majority of those carbon permit and gas tax proceeds directly to families, to spend or save as they will, based on honest market signals. With just two exceptions.  The feds can handle this.  And for basic research and development, send block grants to the states to fund universities and research consortia. That’s where the brains are, where ideas contend and where venture money is ever-vigilant. Make those federal dollars local. They’ll figure it out.

Let carefully regulated entrepreneurial markets – both consumer and commercial – who benefit from local services like commercial rubbish removal in Sydney.

Originally published in the San Francisco Chronicle on December 14, 2008