This post originally used the names Version A and Version B. They have been changed to Version 1 and Version 2 to be consistent with a post on the same issue last year.
The analyses described here assumed that emissions at the start of a CFD program would be 6.0 billion metric tons of CO2 per year. This was too high and a more appropriate number would have been 5.0 billion. All quantities would be lower by 1/6th, but the curve shapes and the conclusions would not change. Bill Allen, 06-27-18
Citizens’ Climate Lobby (CCL) proposes a system of Carbon Fee and Dividend (CFD), in which gradually rising fees are imposed on fossil fuels (aka “carbon fees”), and the fee revenue is distributed to the public in the form of “dividends.”
The current CCL proposal is to allocate one full dividend share to each eligible adult in a family or household, one half share to each of the first two children, and no dividend share to later children. An adult is defined as a person 19 years old or more. Call this Version 1.
I propose a full dividend share for adults, and also that all children be treated equally, after accounting for their ages. Specifically, allocate 1/19th of a dividend share for each year of a child’s age, until he or she becomes an adult at age 19. Call this Version 2.
One argument advanced for Version 1 allocation rules is that some families with young children will need more help in the early years.
Analyses: There follow calculations for eight dividend streams: for two family structures, for each of these in two time frames, and for each of the four, a dividend stream produced by Version 1 rules and another dividend stream produced by Version 2 rules.
Each analysis uses an estimate for the value of a dividend share in a year. This share value is the total fee revenue to be paid out in a year divided by the total dividend shares that are to be paid out. A series of these share values is in Dividend Share Value. They are based on the following rules and assumptions.
- The total US CO2 emissions from fossil fuels at the start of the CFD program are 6.0 billion metric tons (gigatons, GT). This is based on reported emissions for 2015 and is rounded up. Emissions will decline linearly to zero over 40 years.
- A fee of $15 per metric ton of CO2 is imposed on a fossil fuel in the first year of the program and then raised by $10 in each year thereafter.
- Carbon fees are not adjusted for inflation in this analysis. They should be when the real CFD program is in operation.
- The quantity of dividend shares in a year is based on a model I made in 2010. I used population projections from the Census Bureau, an estimate of the population fraction that is children, and an estimate of the undocumented residents who will not be eligible for dividends. The dividend shares estimate for Year 1 of the CFD program in the instant analysis is the dividend shares estimate made in 2010 for the year 2020.
- Revenue generated by a specific fee level is paid out in dividends in the next year.
- 98 cents of each revenue dollar are paid out as dividends, and 2 cents are used for program administration.
- In each analysis the dividend stream begins in the year the first child gets his or her first dividend and ends when the last child becomes an adult at age 19.
Note that the value of a dividend share rises initially, gradually levels off, peaks in Years 18 and 19, and then turns back down towards zero.
The dividend stream analyses are in the cases defined below. Click on a case to see the analyses and a chart.
Case A: Two parents with two children separated by two years. Dividends for the first child begin at age one in the first payout year of the CFD program. Assume this is 2020.
Case B: Same as Case A, but with four children and age separations of two years.
Case C: Same as Case A, but with time frame shifted out ten years. Dividends for the first child begin at age one in the eleventh year of the CFD program. This is 2030.
Case D: Same as Case C, but with four children and age separations of two years.
Observations:
Case A: Version 1 does allocate an average of $540 more dividends than Version 2 for Year 3 thru Year 7 for the 2-child family. But they are less by an average of $1,012 for Year 14 thru Year 20.
I helped my wife raise two daughters, and I am certain that their carbon footprints grew over the years along with their expenses. I believe most parents of two children would prefer the continuously growing dividend stream from Version 2 over that from Version 1.
Version 2 allocates $4,190 (4%) more total dividends over the 21-year period.
Case B: Version 2 shows a huge advantage for the 4-child family after Year 8. The dividends grow continuously thru Year 22. And total dividends are $29,454 (21%) more over the 25-year period than those from Version 1.
Version 2 is clearly more fair and advantageous for a Case B family.
Case C: This is the same as Case A, except that Year 1 for the family dividend is 2030. Dividend share values start to turn down after Year 11 (2040), but the rising share allocations produced by Version 2 rules buck that trend to produce rising dividends thru Year 15.
Dividends from Version 1 are greater in the early years but start turning down in Year 10. As a father who helped raise two children, I will state again that I would much prefer the smooth and rising dividend stream from Version 2, and I believe other parents would agree with me.
Case D: The differences between Version 1 and Version 2 outcomes are more stark here. Version 1 dividends start turning down in Year 10, and are very irregular in the late years. Version 2 dividends rise smoothly thru Year 17 and then decline.
Total Version 2 dividends are $21,637 (16%) greater than Version 1. Version 2 is again more fair and advantageous for a Case D family.
Wrapup: I have several reasons for advocating Version 2 allocation rules:
- make system fair for all adults and all children,
- avoid political mine field of questions regarding “responsible” family size,
- reduce the complexity and cost of the system for determining and distributing carbon fee dividends,
- remove need to access or use any IRS data,
- reduce the risk of errors,
- make it easy to set up an independent Carbon Dividend Administration,
- build trust in the dividend distribution system, and
- build long-term public support for the CFD program.
I have explained these elsewhere.
My purpose here has been to examine the impacts of the two sets of allocation rules over the whole period that a family will have children under 19 years old. I conclude that Version 2 will be much more fair and advantageous for both the parents and the children in these families.
These results prompt a prediction: We will find no better way to grow support for CFD than to produce steadily rising dividends. Version 2 does this better than Version 1 in each of the four cases examined above.
Bill Allen, 11-20-17 revised