Taxes are politically dangerous, Reich said, and a cap-and-trade system simply allows companies to keep ruining the environment by just buying the right to do so from other companies. A carbon auction, on the other hand, would force companies to bid for the right to pollute with the money going to citizens as a yearly dividend check (think Alaska and oil revenues). So as there's no overwhelming amount of carbon and other pollutants dumped by the richest companies, there would be overall limits on how much could be sent into the ground/airl/water. As Reich says, "I mean, it's our atmosphere, right? Think of a national park or a national forest. No company is simply allowed to take what they want from it, free of charge. Why should the atmosphere be any different?"
So, the people get a check for the dirty air and companies will have serious monetary incentives to reduce pollution. The less they make, the less they'll have to bid.
You can read the full transcript of Reich's commentary and listen to it here.
[Source: Marketplace, h/t to Eric]