Carbon Rebates: Better than Carbon Regulations?


Carbon Share

The New York Times is running today an op/ed, "The Carbon Dividend," by University of Massachusetts economist James Boyce touting a new bill by Rep. Chris Van Hollen (D-Md.) that would set up a cap-and-dividend program that aims to limit U.S. emissions of globe-warming carbon dioxide. Boyce explains that the plan…

…would require coal, oil and natural gas companies to buy a permit for each ton of carbon in the fuels they sell. Permits would be auctioned, and 100 percent of the proceeds would be returned straight to the American people as equal dividends for every woman, man and child…

The number of permits initially would be capped at the level of our 2005 carbon dioxide emissions. This cap would gradually ratchet down to 80 percent below that level by 2050. Prices of fossil fuels would rise as the cap tightened, spurring private investment in energy efficiency and clean energy. Energy companies would pass the cost of permits to consumers in the form of higher fuel prices. But for most families, the gain in carbon dividends would be greater than the pain. In fact, my calculations show that more than 80 percent of American households would come out ahead financially—and that doesn't even count the benefits of cleaner air and a cooler planet.

As the cap tightened, prices of fossil fuels would rise faster than quantity would fall, so total revenues would rise. The tighter the cap, the bigger the dividend. Voters not only would want to keep the policy in place for the duration of the clean energy transition, they would want to strengthen it.

The net effect on any household would depend on its carbon footprint—how much it spent, directly and indirectly, on fossil fuels. The less carbon it consumed, the bigger its net benefit. But why would a vast majority emerge as winners?

There are two reasons. First, among final consumers, households account for about two-thirds of fossil fuel use in the United States. Most of the remainder is consumed by government. In Mr. Van Hollen's bill, households would receive these other carbon dollars, too.

Republicans should welcome this feature, since over the years it would return billions of dollars from the government to the people. Unlike a carbon tax, which brings in more revenue for the government, Mr. Van Hollen's bill is, in effect, a tax cut.

Boyce likens the proposal to the popular Alaska permanent fund that divvies up oil and gas royalties to each Alaskan citizen. (To get a better idea how the Alaska fund works, see my colleague Jesse Walker's "One State Already Has A Basic Income Plan.")

Given that the bastards in Washington and various statehouses are going to "do something" about climate, this proposal could be thought of as a least bad policy alternative policy. After all, our policymakers have already screwed up the economy with ethanol mandates, EPA coal regulations, CAFE standards, feed-in tariffs, renewable portfolio standards, tax credits for solar, wind, and electric cars, and on and on and on. So what about a deal? Get rid of all of those regulations, mandates and requirements in exchange for this straigtforward carbon dividend plan.