2013-04-29

Why Polluters Should Pay You To Fix Climate Change

A carbon dividend--cash paid out to every American family from money taken as a pollution tax on companies--could be the idea that finally adds the right economic incentive for people to adopt climate-friendly lifestyles.

“Dear Mr. and Mrs. Smith. Please find attached your check for $651.76. This check covers your household’s portion of the carbon fees paid by greenhouse gas emitters in the first quarter of this year. Another check will be forthcoming in three months.”

A majority of Americans believe that humans are warming the planet, but we aren’t willing to pay to fix it. Only a small minority--21%--say that they’d be willing to pay markedly higher energy prices in order to address the problem.
What if we turned the tables on that question? What if polluters paid everyone else to fix climate change? That may sound crazy, but it’s economically sound. Here’s how it would work.

One of the most agreed upon tools among economists for addressing climate change is a carbon tax. Under a carbon tax, polluters would pay a fee for every ton of carbon dioxide and other greenhouse gases emitted into the atmosphere. That fee gets passed on to consumers, raising the price of gasoline and the price of electricity generated from coal and natural gas. Few Americans are eager to see their utility bills or the price they pay at the pump rise.

But what if we returned all the money raised by such fees to every woman, man, and child in the United States, equally? This is one variation on a "revenue neutral" carbon tax, where the money raised by the tax is directly returned to tax-payers in some way.

Ramez Naam is the author of the forthcoming book The Infinite Resource: The Power of Ideas on a Finite Planet.

For a family with an average income and average energy use, the dollars would exactly balance out. The check (or tax rebate) received would match the increase in fuel and energy prices. But the tax would still be a tremendously powerful force in shifting behavior. With higher gasoline prices, a more fuel efficient car makes more sense as a purchase. With higher home heating or electrical bills, upgrading to a more efficient furnace or better insulation makes more sense. Perhaps more importantly, it would have a huge impact on how energy is generated. A carbon tax would raise the price of coal, oil, and gasoline, in direct proportion to the amount of carbon they emit.

But it would leave the price of solar, wind, hydro-power, and nuclear unaffected. With fossil fuels more expensive, consumers, businesses, and utilities in many areas would find that renewable energy was now the most cost-effective option, accelerating the shift already underway. Those dollars shifted to renewables, in turn, would fund additional R&D, continuing the already steep decline in the price of solar and wind power around the country.

In short, polluters would be putting money in your pocket, which you would be more likely to spend on carbon-free sources of energy and improvements to energy efficiency. They’d be paying you, and every other American, to fix climate change.

How big would the dollar impact be? At a price of $30 per ton of CO2, an evenly distributed carbon dividend would pass on roughly $2,600 to a household of two adults and two children, or just over $650 every three months. That would be matched by a roughly 3 cent per kilowatt hour rise in average price of electricity, and a 30 cent per gallon rise in the price of gasoline. More realistically, a carbon price would start out at zero for a few years and then ramp up over a following decade to a price of around $100 per ton. That long phase in would give utilities, businesses, and consumers time to adapt by increasing efficiency and switching to lower-carbon sources of energy.

A carbon dividend--a revenue-neutral carbon tax that puts money directly into the hands of U.S. households--addresses many of the concerns that conservatives and liberals alike have voiced about levying a price on carbon.

Conservatives worry that any carbon price would be negative for the U.S. economy. But by returning the funds raised to American households, a "carbon dividend" model completely offsets that effect, having no negative impact on the economy at all.

On the other side, liberals worry that consumption taxes are regressive, by putting more of a burden on the poor. But a carbon tax that is returned evenly as dividends to every woman, man, and child in the country is actually progressive. Lower income households are responsible for fewer carbon emissions. That means the carbon dividends they receive will be larger than the increase in their energy prices. And because lower income households spend a higher fraction of what they earn, that money will go back into the economy, and may actually serve as a stimulus.

Conservatives also fear the proliferation of overly complex government regulation. Yet a carbon tax is the simplest, most market-based regulation possible, and one that’s beloved by top conservative economists, including former Federal Reserve chairman Paul Volcker; Harvard’s Greg Mankiw, who served as a senior economic advisor to Mitt Romney and as Chairman of President George Bush’s Council of Economic Advisors; and Art Laffer, one of the founding fathers of supply-side economics.

But the most important reason to advocate a carbon dividend approach is that American voters may actually support it. Americans want to do something about climate change, but they’re not willing to pay much for it. Pay them instead, and the tables will turn.

Your carbon check is in the mail.

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24 Comments

  • Bfman

    Just because you say this does not make it so. What is your motivation? Climatedepot.com for all the debunked science you need. Then you assume the outcome of climate change is bad. Why? How? It hasn't been up to now...talking over millions of years. Only man is arrogant enough to know that right now is the perfect snap shot of evolution. Even if climate change or warming? Which is it? Even if happening, go with Bjorne Lomborgs strategy of allocating our resources. The last thing I trust is the government trying to fix the problem. Notice it involves a tax. Take the tax revenue away and global warming goes away rest assured. Last Al Gore is a total hypocrite whore. Bad spokesman. You should tell him to go away. Leave it to a democrat to figure out a way to tax the weather.

  • Bluestfan

    1. Just stop buying the products of polluters or sue them civilly.

    2. Government involvement is a good way to get failure; especially if it involves taxes.

    3. Climate change is a reality, but that it is created by people is fabricated to make people like Al Gore Richer.. don't believe me? Please follow the money.. see who is profiting here.

  • robot_makes_music

    so like, wont they just increase their overall prices to the end customer to make up for the extra tax they have to pay?

  • This is why the dividend goes directly to households. There is a limit to how much they can raise prices; giving consumers leverage to meet new cost means the added cost burden will always fall on polluters and their investors. As the fee and the dividend steadily rise, they will see their profit margins steadily shrink, even if every dollar from the dividend goes to them. Within a few years, it would be exceedingly foolish for anyone to keep putting money into an industry that can only promise very narrow returns in a best-case scenario.

  • Ray Myrtle

    This system is in place here in BC (Canada). The carbon tax proceeds are allocated to reducing taxation. We get our 'rebate' in the form of lower taxes.
    It works.

  • Calliekitty500

    I'm in when you convince China to do it. Pretty arrogant to think that humans are causing this "so called change"............what dribble.

  • Chris

    China has started a numbe of pilot programs for emissions trading of greenhouse gases in seven large municipalities.

  • BenGleck

    I'm in even though so many make a political football out of it. Pretty arrogant to assume that humans aren't causing what you assume not to be change............what dribble.

  • realist

    You're crazy if you don't think a carbon tax on corporations won't just be passed on to consumers. Besides, global warming is a hoax. The coral reefs, glaciers, polar bears are fine, and tornados, hurricanes and forest fires are at ten to sixty-year lows. We could solve plenty of the world's problems if we weren't throwing money away down the climate change rathole.

  • As it stands, we are sending hundreds of billions of dollars a year to unaffordable negative impacts from an outdated energy-delivery model. There is no single area of public spending that is more wasteful than insistent inaction on climate destabilization, and the current response to impacts, which is a spend-to-cope strategy resembling a game of whack-a-mole. Evidence shows that we can actually do better, economically, even without considering climate impact costs, if we price carbon and return money to households, so the local wisdom of everyday people can go to work building a better model. Here's a run-through of the actual, conservatively conducted economic analysis: http://poeteconomist.com/remi

  • SMG

    Just pointing out the obvious point in all 'climate change' discussion: at one time all of this CO2 was in the atmosphere. All coal/oil/gas was at one point free CO2 (all FOSSIL fuels are dead plants and animals after all). Another point is that Antarctica was once a forest, so the melting ice is not 'unnatural'.

  • MarkAttack

    It's important to remember that at one time the Earth was completely uninhabitable to humans. It's not worth debating "natural" vs "unnatural". What is worth thinking about is do we want to live on a planet with rising temperatures, and the reasonable answer is no

  • GRLCowan

    The US government already makes a lot of money on fossil fuels. This influences its behaviour, and not in a good way.

    The carbon dividend is a good idea, but what if, instead of putting a new tax on these already heavily taxed fuel, we divided out the *existing* revenues?

    Not only would this immediately improve governmental behaviour, it would establish the bona fides of those promising to rebate the proceeds of the new tax. There would be a precedent for the rebate.

  • Good thinking, but the existing revenues that flow from fossil fuel use are not sufficient, for two reasons: 1) far more than we take in already goes back out in subsidies—direct, indirect and structural—to fossil fuel interests, and 2) the redirecting of such funds would not be sufficient to redirect the investment priorities of the people who pour capital into fossil fuels. A 100% dividend from a steadily rising carbon fee will shift economic leverage back to families and individuals, driving up real disposable income, and requiring energy interests to compete for local, high-efficiency energy options—i.e. something other than carbon-heavy combustibles.

  • dennis baker

    anything but replacing the primary source of emissions , that's thinking !

    In my opinion We need to replace the fossil fuel power plants, the primary source of GHG. Now! At a scale required to accomplish this task : Ethanol starves people : not a viable option. Fracking releases methane : not a viable option. Cellulose Bio Fuel Uses Food Land : not a viable option Solar uses food land : Not a viable option Wind is Intermittent : Not a viable option All Human and Agricultural Organic Waste can be converted to hydrogen, through exposure intense radiation! http://www.huffingtonpost.com/... The Radioactive Materials exist now, and the Organic waste is renewable daily. Ending the practice of dumping sewage into our water sources. Air, Water, Food and Energy issues, receive significant positive impacts . Reducing illness / health care costs as well ! Dennis BakerPenticton BC V2A1P9 cell phone 250-462-3796 Phone / Fax 250 492 0033

  • mttorley

    ah, if only global temperatures WERE rising this past decade, this article could have some credence.   The global warming band wagon has pulled off to the side of the road Mr. Ramez!

  • timeglider

    Yes, and if only the world were ROUND, we might actually navigate around it going in one direction!  

  • thinkclearly66

    If you actually believe that they would pay the same amount to offset higher energy costs (and not just energy.. EVERYTHING would be higher to buy because everything takes energy to make. Loaves of bread, gallons of milk, EVERYTHING), I have a huge bridge I would like to sell you in New York City.