As long as fossil fuels remain artificially cheap and profitable, their rising use threatens civilization and human survival. Correcting this massive market failure from driving us beyond all tipping points requires that the price of carbon pollution account for its true social costs.
Carbon pricing is regarded by economists, investors and politicians around the world as the most sensible and effective systemic measure to address climate change.
A national carbon pricing measure, properly designed, will do four things: internalize the social cost of carbon, rapidly achieve large emission reductions, minimize economic disruption and recruit global participation.
An escalating revenue-neutral carbon fee and dividend (CFD) with border tax adjustments will achieve these outcomes. Its success derives from five distinct features:
1. Full dividend return: This feature will inject as much as $200 billion into the economy within 3 years. It protects family budgets from increasing energy costs by returning the revenue in the form of monthly checks to all households. It does not impose any rules on recipients making independent decisions about their energy usage. It will mobilize the power of aggregate demand for low-carbon products. It's an engine that builds a broad consumer financial stake at the retail level in lowering overall emissions.
2. Transparency: CFD is understandable to the public, will be completely accessible to public scrutiny and clear in its signals and benefits.
3. Bipartisan appeal: CFD already appeals to a broad range of views. It does not increase the size of government, require new bureaucracies or generate additional government revenues. The dividend protects lower income families and will recruit widespread, sustained approval and engagement. It will also facilitate the phasing out of all energy subsidies and some existing energy regulations.
4. Border tax adjustments: Import fees legally imposed on foreign products manufactured in nations without any emission fees, coupled with rebates to US exporters sending products to those nations, will create a fair competitive environment for US exporters and motivate other countries to adopt policies that harmonize global carbon pricing.
5. Predictability: A structured rising price on GHG emissions creates the context business planners require to optimize investment priorities and thrive in a carbon-constrained world. It also completely by-passes the volatility and complexity of cap-and-trade, not to mention subverting the rent-seeking behavior of Wall Street banks and traders. A CFD will not be prone to fraud.
Carbon fee and dividend is a democratic, market-based solution to the existential issue of our time. It is gaining support across the political spectrum.
But the best part is this: can you imagine the effect of mass participation in a climate solution and being able to see those effects growing in your own life, in your community and in your world? The psychological and social benefits of an equitable, transparent approach to engaging the nation to fight climate change are incalculable. And, we will finally be paying the true cost of fossil fuels.