We’ve written a bit about cap-and-dividend: it’s a variety of cap and trade in which 100 percent of the program’s revenue is returned on a per capita basis. It has the pretty terrific effect of simultaneously limiting carbon and advancing equity. Like a climate version of the Alaska Permanent Fund Dividend, it would give people a stake in the program’s success.
Now it appears that there’s a tax-and-dividend movement gaining steam. As Andrew Revkin points out in the NY Times environment blog, conservative columnist John Tierney and ur-climate scientist James Hansen are both proposing carbon taxes with a full rebate from the proceeds. They’re in the company of researchers at the RAND corporation. In the Northwest, the conservative Washington Policy Center has made a similar proposal (a small carbon tax that would offset the state sales tax). And of course, the best example of a tax-and-dividend-esque policy is British Columbia’s new carbon tax shift.
The worst thing about the present inadequate political approach is that it will generate public backlash. Taxes will increase, with no apparent benefit. The reaction would likely delay effective emission reductions, so as to practically guarantee that climate would pass tipping points with devastating consequences for nature and humanity.
Carbon tax and 100% dividend, on the contrary, will be a breath of fresh air, a boon and boom for the economy. The tax is progressive, the poorest benefiting most, with profligate energy users forced to pay for their excesses. Incidentally, it will yield strong incentive for aliens to become legal; otherwise they receive no dividend while paying the same carbon tax rate as everyone.
Who knows? If thinking like this becomes more prevalent, carbon taxes could become politically viable after all.
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Unlike Hansen, I favor a cap because of the importance of certainty—of having a legal limit on carbon emissions—but whichever policy you prefer, the dividend approach has a lot going for it.
Here’s Hansen again, on how tax-and-dividend would work:
The entire carbon tax should be returned to the public, with a monthly deposit to their bank accounts, an equal share to each person (if no bank account provided, an annual check—social security number must be provided). No bureaucracy is needed to figure this out. If the initial carbon tax averages $1,200 per person per year, $100 is deposited in each account each month. (Detail: perhaps limit to four shares per family, with child shares being half-size, i.e., no marriage penalty but do not encourage population growth.)
A carbon tax will raise energy prices, but lower and middle income people, especially, will find ways to reduce carbon emissions so as to come out ahead. Product demand will spur economic activity and innovation. The rate of infrastructure replacement, thus economic activity, can be modulated by how fast the carbon tax rate increases. Effects will permeate society. Food requiring lots of carbon emissions to produce and transport will become more expensive and vice versa—it is likely, e.g., that the U.K. will stop importing and exporting 15,000 tons of waffles each year. There will be a growing price incentive for life style changes needed for sustainable living.
Update, 12:00 noon: It appears the Canadian Liberal party is also pursuing a tax-and-dividend policy of some variety—it will offset existing taxes, rather than send checks directly. Will it pass muster with Canadians? Only time will tell, but I can’t resist including this quote from the Conservative party (that’s the party that’s currently in power):
Environment Minister John Baird chimed in: “I think Canadians, you know, this tax will be revenue neutral it’s like the cheque is in the mail, it’s like I’ll respect you in the morning. It’s just not believable.”