One hundred state and local governments from Colorado to California have passed resolutions in support of a Carbon Fee and Dividend Policy. This challenge to Washington's business as usual approach to climate change may not be enough.
Recently, it’s been rough for those of us who care about climate change. Most prominently, the United States withdrew from the historic Paris Climate Agreement thereby reneging on its promise to help hold rising global temperatures under 2 degrees Celsius. This decision leaves the United States as the only country in the world to not sign the agreement and rejects a world-wide cooperative approach to solving the most important challenge facing the only home we have.
But there is reason for genuine optimism on the climate change front. Nearly a decade after cap-and-trade legislation passed the U.S. House but it withered in the Senate, there is momentum for a simpler way to put a price on carbon emissions. It’s called a Carbon Fee and Dividend (CF&D), and the idea has generated support from the grassroots level to high-power Washington establishment figures.
Here’s how it works: the government would set a fee on carbon dioxide emissions, and distribute the money it generates back to Americans as a dividend—think of it as a “green check.” The goal is to set the fee high enough to encourage industry to move to cleaner energy while ensuring the public doesn’t face higher fossil fuel costs during the transition.
Carbon Fee and Dividend is a simpler solution than cap-and-trade, without the stigma of a big-government approach. A hundred state and local governments—from Ridgeway, Colorado to the state of California—have gotten behind the idea, passing nonbinding resolutions urging its implementation.
A Bipartisan Approach
A bipartisan Washington group, Americans for Carbon Dividends, has put some big political muscle behind the effort.
The group is co-chaired by Trent Lott, former Republican Senate Majority Leader, and John Breaux former Democratic Senate Deputy Majority Whip. In a New York Times op-ed in June, the two leaders urged Congress to back a plan by former Republican secretaries of state, James Baker and George Shultz—which they said should appeal to Democrats and environmentalists because of its significant carbon emissions, and to Republicans and business interests because of its market-based solution.
Proponents of CF&D see it as a catalyst for stepping more resolutely into an economy driven by sustainable energy. It’s viewed as a less complex and more just approach for lowering carbon emissions than other approaches that have been proposed such as the carbon tax and the cap-and-trade system. Two bills on carbon pricing were re-introduced in the Senate and the House in 2018. The Healthy Climate and Family Security Act is based on a national cap-and-dividend. The American Opportunity Carbon Fee Act is a carbon tax. The America Wins Act, introduced in 2017, calls for a fee per ton of carbon emissions beginning in 2019 that rises yearly by 2 percent over inflation. The bill includes a “Build America Trust Fund,” where revenue is directed at infrastructure investments and direct monthly payments to targeted communities and low-income American families.
Cap-and-trade systems put a cap on greenhouse gases set by the government across certain industries or the overall economy. Along with the cap, the government allows regulated companies to emit a certain amount of greenhouse gases. The emission allowances are then auctioned or allocated to regulated entities. Businesses and emitting sources can purchase and exchange these permits amongst themselves. The cap-and-dividend system is modeled on cap-and-trade but directs the proceeds from the auction of permits towards citizens in the form of a dividend, rather than investing in roads, bridges, infrastructure, renewable energy, energy innovation, and environmental initiatives.
Economic and Environmental Benefits
A CF&D system starts with a fee levied on fuels at the point of origin into the economy. This could be at a well, a mine, a refinery, or an import facility. The fee reflects the carbon level of the fuel. Initially proposed fees range from $10 to $17 per ton of carbon emitted when the fuel is burned. This fee accounts for the real costs of burning fossil fuels and reveals to the public the actual expenses when comparing fuel. The fee would progressively increase each year to reinforce the motivation to move away from fossil fuels and embrace renewable energy and low-carbon/no-carbon products.
Analysts project that around 66% of households would break even or receive more than they would pay in higher prices through CF&D. These dividends would fuel the economy with billions of dollars while helping to secure household budgets. Customers would have the freedom to determine their energy usage in ways that ignite breakthrough thinking and innovative solutions while increasing the call for sustainable products. Returning 100% of the net fees would create a revenue-neutral carbon fee and dividend system.
A border tax adjustment would be levied on imports from countries that don’t have a similar fee on carbon. US-made products exported to these countries would get a rebate/refund for the carbon fee related to the products’ footprint. The combination of border adjustment and rebate will cause businesses to think twice about relocating their operations to countries where they can continue to emit carbon without consequences (this is called “leakage”). This scenario could also prompt other nations to embrace a CF&D approach—although 23 countries already have a carbon tax and 18 others are considering one.
The CF&D has a key political advantage over other plans to reign in carbon emissions—it won’t increase the size of government or create new departments or, taxes. It also won’t directly increase government revenues. This is especially appealing to those who want to reduce emissions without building new bureaucracies.
Regional Economic Models, Incorporated (REMI) conducted an economic impact analysis around CF&D that begins with a $10 per ton fee, increased by $10 per year. It found that returning all net revenue to households would lead to environmental, health and economic benefits.
A Closer Look: Benefits of Carbon Fee & Dividend
Carbon dioxide emissions in the United States decreasing to 50% of 1990 levels in the first 20 years.
Over the same time span, reductions in airborne pollutions that accompany carbon emissions would result in 230,000 fewer premature deaths.
Regular dividend payments would stimulate the U.S. economy, leading to the creation of 2.8 million jobs over baseline during the program's first two decades.
A positive effect on national GDP, adding $70 billion to $85 billion per year for a cumulative 20-year increase of $1.375 trillion over baseline.
Citizens’ Climate Lobby sees the value of CF&D and has been a valuable partner with many of the 100 communities that have produced CF&D resolutions. Citizens’ Climate Lobby has proposed a first-year fee of $15 per ton of CO2 equivalent emissions, rising by $10/metric ton each year. The Treasury Department would collect the fees, which would be placed into a Carbon Fees Trust Fund and be rebated to American households. Equal monthly per-person dividend payments would be made to all American households (½ payment per child under 18 years old, with a limit of two children per family) each month.
In an online fact sheet, Citizens’ Climate Lobby calls CF&D politically sustainable and more efficient than green subsidies, with a “big impact on equity.” The Citizens’ Climate Lobby also features a link on its website on how to get a local resolution passed, as well as a tutorial to guide volunteers through the process.
This action at the grassroots is indispensable, but it’s not enough. We need a strong national response to climate change and must continue to push our elected officials at the federal level, no matter how uphill the effort appears. Bipartisan support in Washington shows that’s still politically viable. Still, the action at the local level does represent the growing political will of Americans and is helping to pave the way for a comprehensive solution.