Glenn Hubbard, dean of the Graduate School of Business at Columbia University.
Glenn Hubbard, dean of the Graduate School of Business at Columbia University. - 
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Kai Ryssdal: The head of the United Nations panel on climate change said today he thinks the world's biggest economies are blowing it. The Intergovernmental Panel on Climate Change shared the Nobel Peace Prize with Al Gore two years ago. Today its chairman, Rajendra Pachauri, said the group of eight industrialized countries had clearly ignored his panel's advice.

There's a big push on to come to some kind of international agreement on global warming before a key U.N conference at the end of the year. But commentator Glenn Hubbard thinks the U.S. approach to climate change has a fatal flaw.

GLENN HUBBARD: Global climate change is an important subject, even at the recent G8 Summit. And the Congress and the Obama administration are on the case.

Or are they?

By a very narrow margin, the House passed its climate change bill, broadly supported by the administration, earlier this month. The central element is a cap-and-trade system for greenhouse gases. The cap-and-trade would set emission limits nationally and require emitters to own permits -- allowances -- to cover their emissions.

The legislation made a mistake so big that the House should start over. It created a huge new corporate welfare program.

First, two things: Done properly, like a tax, a cap-and-trade system can give the right price signal to reduce emissions. Economists generally like this approach, citing the success of such a program in reducing sulfur dioxide emissions in the 1990s.

And, also like a tax, the system can generate a lot of money. In this case, by auctioning allowances. The nonpartisan Congressional Budget Office tells us those allowances could be worth $1 trillion over the next decade, and much more in decades to come.

So far, so good.

Now comes the mistake: the House dropped the ball. It would give away three-fourths of the allowances. If, instead, the government auctioned all of the allowances, almost $750 billion would be raised over the next 10 years. This action would reduce emissions, and funds could be used to cut corporate taxes to improve growth.

Adding insult to injury, it would spend the other fourth of the allowances. Little improvement in emissions, no deficit relief, big new tax -- uh oh.

Memo to the Senate: Cut off the House's allowances and send it back to the drawing board.

RYSSDAL: Glenn Hubbard is dean of the Graduate School of Business at Columbia University.