Put the brakes on cap and trade.

That was the clear message delivered by San Francisco Superior Court Judge Ernest Goldsmith last week when he ruled that the state's Air Resources Board must refrain from any activity related to setting up a pricing mechanism for carbon until alternatives to cap and trade are fully explored.

Some environmentalists may see Goldsmith's ruling as a setback on climate policy, but I see it as an opportunity to get it right. And if California is going lead the nation in curbing the heat-trapping gases that put our state and our world at risk, it's important that we lead in the right direction.

The state's plan relies on a cap and trade approach, whereby industries are given allowances to release carbon dioxide and other greenhouse gases and must purchase more allowances if they exceed their limit. But Judge Goldsmith said the Air Resources Board did not give adequate consideration to alternatives, such as a carbon tax.

There are a number of reasons to look at such an alternative.

In order to reduce greenhouse gases in our atmosphere to levels that are safe and sustainable, we must transition quickly from carbon-based fuels to clean sources of energy. That transition won't happen unless investors are certain that fossil fuels will be more expensive than clean energy in the future. Cap and trade, which produces a volatile commodities market for carbon that allows the price to go up and down, offers no such certainty. Many investors, then, remain on the sidelines.

On the other hand, a carbon tax, increasing gradually each year, offers the assurance that clean energy will be a better bet for investors. Rather than taxing end users, it would be simpler and more effective to place a fee on carbon-based fuels when they first enter the economy.

If we take the additional step of giving revenue from a carbon tax back to California citizens – known as carbon fee and dividend – this approach becomes even more appealing. Placing a price on carbon – whether through cap and trade or fee and dividend – will increase the cost of energy and goods that require lots of energy to produce.

Middle- and lower-income households, however, shouldn't bear the financial brunt of our transition to a low-carbon economy. Returning revenue to the people takes the economic sting out of pricing carbon.

No such compensation exists, however, under California's cap and trade program, making it a policy decidedly unfriendly to the poor.

And there's another fatal flaw in California's plan to limit climate change: allowing polluters to purchase carbon offsets instead of cutting their own emissions.

Writing for themselves and Citizens Climate Lobby, environmental attorneys Laurie Williams and Allan Zabel filed a comment in December citing significant problems with offsets.

• Additionality: Reductions in greenhouse gases through a particular offset project would probably occur in the course of business as usual and, therefore, not be additional.

• Leakage: The harmful economic activity that a project reduces – logging of trees, for example – will simply shift to another location.

• Perverse incentive: Rather than control a greenhouse gas by regulation – methane from large farm animals, for example – the economic incentive is created to keep activities unregulated in order to reap the economic windfall of offsets.

If we're hoping that California's carbon-cutting policy will set an example for the rest of the country to follow, cap and trade with offsets might not be the horse to hitch our wagon to. Having tried and failed four times to pass cap and trade in the U.S. Senate, it appears unlikely the fifth time will be the charm.

With the current Congress divided between a Republican House and a Democratic Senate, there is no chance that cap and trade could emerge as a national solution. It's a system that increases the size of government and creates more regulatory bureaucracy, neither of which any Republican will agree to.

A carbon fee and dividend approach, however, is revenue neutral, and provides the incentive to switch to clean energy without running afoul of conservative principles. By returning the revenue to the people, either through direct payment or reduced taxes, we can make the necessary transition, boost our economy and create new jobs.

Judge Goldsmith has given us the chance to develop a policy on climate change that is simple, transparent and – most importantly – effective. It's an opportunity we shouldn't squander.

© Copyright The Sacramento Bee. All rights reserved.

Mark Reynolds is executive director of Citizens Climate Lobby, based in San Diego.

• Read more articles by Mark Reynolds