We need climate policy beyond individual action---that seems indisputable given the scope of the challenge.  And maybe, just maybe, Whitehouse officials are now planning out what it might look like.

What's the problem?  The usual climate policies discussed by pundits and wonks alike have issues: a) they're complex and/or b) are easy to oppose politically.  The most common two climate policies are Cap and Trade and Carbon Taxes.

It turns out that there is a dark horse policy that is the simplest I know of.  When I first heard it, I thought to myself: now why didn't I think of that?  It has a certain undeniable common sense to it.  It's The Clean Energy Dividend.

Enter James Hansen.  Bill McKibben has taken to calling Hansen America's top climate scientist, and I think that's right in more ways than one.  A few years ago, James Hansen began advocating for a simple and effective alternative to these two approaches, now crisply labeled by Dan Miller as the Clean Energy Dividend.  Hansen has been researching climate change for longer than most anyone discussing the subject today, and his wisdom on the matter shows.

The Clean Energy Dividend works like this:

  1. At each mine (e.g. coal), well (e.g. oil), or port of entry, a fee is applied per ton of carbon.
  2. 100% of the proceeds from these fees are equally distributed as dividends to the American people.

That's it.  When you think about it, it has a certain obvious common sense to it.  Carbon put into the atmosphere is pollution in the skies, and that's shared.  Nobody owns the skies---we all share it.  So the money collected for putting pollution up there comes back to the people in the form of dividends---a regular check in the mail.

While the mechanism on the front end is the same as a carbon tax, it isn't a tax since it's revenue neutral: 100% of the proceeds are returned to the people.  If you're responsible for an average amount of carbon emissions you would see a net zero impact on your finances: you'd pay more for gasoline or electricity or products, but you'd receive that surcharge back as a dividend payment. However, by shifting your use towards clean energy or simply decreasing energy use overall, you as an individual or family can receive more in dividend payments than you pay in surcharges---in fact, it's estimated that something like 2/3 of Americans would come out ahead under this policy (i.e. would get more in dividend payments than paid in surcharges).  Another benefit is that carbon emissions are strongly correlated with income, so it would not be a regressive mechanism like carbon taxes and cap and trade can be.   There's also precedence for dividends: Alaska, for example, issues dividends to its residents for their share of Alaska's oil bounty.

There are a number of other benefits over and above cap and trade. As Hansen explained:

Consider the perverse effect cap and trade has on altruistic actions. Say you decide to buy a small, high-efficiency car. That reduces your emissions, but not your country’s. Instead it allows somebody else to buy a bigger S.U.V. — because the total emissions are set by the cap. In a fee-and-dividend system, every action to reduce emissions — and to keep reducing emissions — would be rewarded.
There's no concept of "carbon offsets" in a Clean Energy Dividend system: no polluter can reach for indulgences to cheaply avoid the fee. It's a direct, simple mechanism, and one that can be easily explained to the average voter. It's also something that's hard to inveigh against as a partisan scheme (though no doubt some will try): there was a mostly ignored bipartisan attempt at something similar (still a bit rough around the edges and doesn't really get all the way there in that it's not 100% dividend) and the approach in general would rely upon a free-market energy transition rather than a government-directed one. And under a proper carbon policy, a properly regulated free-market transition to a post-carbon world might be a good thing in this instance.  Hansen again:
To compound matters, the Congressional carbon cap would also encourage “offsets” — alternatives to emission reductions, like planting trees on degraded land or avoiding deforestation in Brazil. Caps would be raised by the offset amount, even if such offsets are imaginary or unverifiable. Stopping deforestation in one area does not reduce demand for lumber or food-growing land, so deforestation simply moves elsewhere.

Once again, lobbyists are providing the real leadership on climate change legislation. Under the proposed law, some permits to pollute would be handed out free; and much of the money actually collected from permits would be used to pay for boondoggles like "clean coal" research. The House and Senate energy bills would only assure continued coal use, making it implausible that carbon dioxide emissions would decline sharply.

There are of course a few open questions that need addressing, though they're not hard to deal with. For example, how do we handle product imports? Clearly we wouldn't want to ignore the embodied carbon footprint of goods purchased from overseas, as that would unfairly benefit outsourced manufacturing. In the absence of a consistent and accurate carbon accounting scheme that can be applied to overseas manufacturers (something that would be hard to oversee in the first place), it might be easiest to average the carbon fee across all products from a country by unit weight, volume, or nominal price using estimates for the country's carbon emissions and manufacturing output.  There's also the question of children---one suggestion is that children receive a half share of the dividend each.

There's also the question of the psychology of it. Would people learn to associate Clean Energy Dividend checks from the government as refunds on surcharges they see in daily purchases, or would they treat it as a sort of tax refund check to be spent? (And would it make a difference how they view it in the first place?) It seems that more frequent dividend payments would be preferable---say, monthly---rather than infrequent, yearly disbursements.  (Dan Miller suggests direct deposit as a simpler mechanism for frequent dividends.)

For those wondering about some of the issues with Cap and Trade and Carbon Taxes, briefly: neither has shown much strength, either as policy or in terms of political support. Cap and trade has been implemented in Europe with mixed results: instances of wholesale fraud but also arguments that these are fixable design flaws. Carbon taxes have been implemented in fewer places and have seemingly little political support.

In my mind the key problems with these two approaches are, in the case of cap and trade, complexity, and for both together that they are not revenue neutral. The latter fact makes it easy to characterize such policies as expensive and bad for individuals.  The taxes collected by the government in both approaches are unlikely to be spent solely on decreasing fossil fuel use via other means (such as renewable energy investment)---it's hard to imagine legislatures being that enlightened. In addition, cap and trade has been and is likely to be easily gameable, with industries wagering that investing 10 million lobbying dollars up front might save them from 10 billion dollars in cap and trade costs down the line; such lobbying efforts typically aim at securing higher emissions allowances or ensuring that the caps remain high.

Originally posted to barath on Wed Jan 23, 2013 at 07:57 AM PST.

Also republished by Community Spotlight.

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