One of the major challenges facing the Obama administration is finding efficient ways to reduce the nation’s pollution. Obama decided a market-based cap and trade approach is the best way of achieving this goal, as well as creating jobs for many unemployed Americans.

What cap and trade does is set a target for emissions reduction that polluters need to achieve. Companies are given a number of tradable permits that allow them to emit only a level of pollution. After that, they will have to pay a fine. Therefore, companies have the incentive to develop cleaner technologies and they will be able to profit from the sale or trade of those extra permits to less efficient companies.

However, the cap and trade approach might not be the most suitable mechanism to reduce greenhouse gases given the current economic crisis the U.S. faces today. The House of Representatives already passed a cap and trade bill and now the Senate is trying to address the issue.

The concept appears to be simple in theory, but its implementation, enforcement and compliance are unrealistic.

First, the government needs to find a fair way to distribute the permits among thousands of firms of different sizes, industries and across states.

Also, it must mandate ways for the record-keeping and accounting of those emissions. These things alone are difficult to do without politicians and special interest groups getting a piece of the pie.

Since these permits can be traded, it seems impossible to avoid the rise of speculative markets as investors seek to obtain high returns for their investments.

If the government tries to prevent speculation and decides to impose a price ceiling on the value of permits, then it would take away many of the incentives cap and trade is designed to produce.

Finally, the main concern with cap and trade are the price fluctuations for all energy commodities. Many small firms are afraid they will not be able to comply with the reductions because more efficient technologies are not available and other energy sources are costly.

As the nation’s unemployment rate approaches double digits and Americans can’t see the light at the end of the tunnel, other ways to reduce pollution that don’t drastically distort markets, like taxes, need to be considered.

Some benefits of taxing polluters include price stabilization, the elimination of special interests and a transfer of costs to foreign countries. Also, the tax revenues and credits can be given back to firms as subsidies for the purchase of better equipment. Although a price-based approach does not guarantee a targeted reduction in pollutants, a pollution tax may perform better than cap and trade under the current high unemployment levels.

Other reasons to pursue taxes rather than cap and trade include the high level of uncertainty and imperfect information regarding the marginal cost of pollution reduction.

It is imperative to explore other effective and realistic means of pollution reduction. People need to understand the underlying implications of these policies without delving into emotional and populist arguments.

Even though no harm is intended with these policies, our future depends on making the right decisions, not simply having good intentions.