The Carbon Dividend: An Environmental Proposal to Consider

In February 2017, the U.S. Supreme Court dealt a blow to the Obama Administration’s climate centerpiece, the Clean Coal Plan. The Court put a hold on federal regulations to implement the Plan that would have curbed carbon-dioxide emissions from power plants. These emission reductions were the main way the U.S. proposed to meet its commitment under the Paris Climate Accord. The legal case attacking the Clean Power Plan was commenced by West Virginia Attorney General Patrick Morrisey, among others . Then President Trump doubled down by “withdrawing” the U.S. from the Paris Accord, claiming that our commitment forced American workers and taxpayers to absorb the cost “in lost jobs, lower wages, shuttered factories, and vastly diminished economic production.” Now given the hostility of EPA Administrator Scott Pruitt to the mission of that agency, it is hard to be optimistic about our chances for avoiding climate disaster. Where do we go from here?

At least one suggestion has come from an unlikely source. Several elder Republican statesmen have come forward with a proposal for a gradually increasing carbon tax imposed at the first point that fossil fuels enter the economy – the well, mine or port. The tax might start at $40 per ton. The revenue from this tax would be returned as a tax-free dividend to each American with a social security number in periodic checks or direct deposits. At $40 per ton the dividends would be $2,000 for a family of four in the first year. The initial proposal is that all of this tax revenue would go directly to dividends – none would be diverted to other purposes, even to climate R&D.

Among the proponents of this plan are James Baker, George Schultz, Lawrence Summers and Henry Paulson, all senior former government officials and thought leaders in the country. They rightly assert that “[t]he opposition of many Republicans to meaningfully address climate change reflects poor science and poor economics.” For them, the Carbon Dividend is a way for the GOP to return to the environmental achievements of earlier Republican administrations and properly align itself with voter sentiments.

Since the Plan was initially proposed in February 2017, it has attracted support from Exxon-Mobil, BP, General Motors, Pepsico, Proctor & Gamble and many other huge corporations. The value for these organizations comes in the form of better public relations, fewer “command and control” regulations and an end to federal and state tort liability for emitters. We should also not discount the possibility that the corporate executives making the decision to support a Carbon Dividend are concerned about the future of the planet like the rest of us.

In any event, the Carbon Dividend proposal shouldn’t be skeptically received simply because it is favored by some Republican conservatives and large carbon emitters. In order to achieve the critical national purpose of controlling greenhouse gasses we will need everybody on board. Instead, the Plan should be evaluated first on whether it would make meaningful reductions in greenhouse gasses and then on whether it could generate sufficient political support for adoption.

The increasing tax on production of carbon-based fuels will make them more expensive relative to renewable energy sources. This tax-created advantage for renewables would spur their use. The higher cost of products made with fossil fuels would be passed on to consumers in the form of higher gasoline prices and electricity bills. Consumers would gradually demand cheaper products and energy from renewable sources.

The dividend feature would also, in theory, encourage more responsible consumption on an individual level. The dividend would be calculated by dividing the total tax revenue by the number of recipients in the taxing jurisdiction. Although this is not explicitly stated, presumably the amount of the dividend would be calibrated to meet the additional cost of fossil fuel products incurred by the consumer. A consumer would be rewarded by reducing his or her carbon footprint, because by doing so the positive spread between the dividend and the higher cost of energy-related goods would increase. It is estimated that approximately 70% of Americans would come out ahead.

But it seems that the real beauty of this proposal is the way it addresses the psychological resistance people have to acting in their own best interest on the climate issue. A white paper published by New America explains this point. The threat of global warming lacks immediacy, seeming to be remote and disconnected from everyday lives. It is difficult to convince people to endure costs now that will benefit others in fifty years. The dividend provides immediate benefits for behavior that is required to secure a much larger, though long-term benefit. It fundamentally alters the cost-benefit time horizon and it would make political support for adoption much more likely.

Is a Carbon Dividend plan politically possible? It would be certain that powerful political interests in states heavily involved with fossil fuel extraction – West Virginia, Texas, Wyoming, Louisiana, and others – would be opposed. Without a “silver bullet” a Carbon Dividend plan would have no better chance than a cap and trade scheme. In other words, no chance. But the dividend might just be that silver bullet. By immediately distributing a financial incentive to support the plan directly to voters, the Carbon Dividend would pay us to do what we should want to do anyway.

There is, of course, the problem of workers whose jobs might be lost because of the decline in fossil fuel industries. This is a problem that exists now for coal miners due to cheaper natural gas prices and automation. A Carbon Dividend Plan would hasten the demise of these industries. Hard as it is for many in West Virginia to accept, the necessity for an effective national response to climate change may require some decisions that have unpleasant local effects. These local effect cannot be the tail that wags the dog.

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