There is broad agreement among climate scientists that we must reduce our burning of fossil fuels and the production of carbon dioxide (CO2) in order to slow and ultimately stop the process of global warming, and the associated problems of climate change, sea level rise, and ocean acidification. There is broad agreement among economists that the best way to make this happen is to raise the price of fossil fuels. These beliefs have led to several proposals for a fee on each fossil fuel that is based on the amount of CO2 produced when the fuel is burned.
Members of the Citizens’ Climate Lobby (CCL) propose a system of Carbon Fee and Dividend (CFD). It will impose gradually rising fees on fossil fuels and return all fee revenue to the private sector, with the single exception of a small amount to cover CFD administration. The estimate of this cost is about 1% of fee revenue in Year 10 of the program.
Some proponents of a carbon fee propose that the some or all of the revenue be used for other purposes. Examples: reduce payroll taxes, help people in the coal industry who will hit hardest by carbon fee, fund research for ways to conserve energy or switch to non-fossil energy.
I will make five arguments below in support of CCL’s position. Some comments go beyond CCL’s official pronouncements, but I don’t think they conflict with them, except in one case I will note.
ONE: Carbon fee dividends are intended to help adjustments prompted by the rising costs of products and services dependent upon fossil fuels. They will be sent to households, who will spend and return the funds to the private economy, where both consumers and the business community will use them.
CCL commissioned a Household Impact Study in 2016. This estimates that 53% of households nationwide will receive more dividends in Year 1 than they will spend for the price increases. The estimate for NJ District 7 is that 40% will come out ahead.
The flip side of this analysis is that, with return of all carbon fee revenue, 47% of households nationally will not receive enough dividends to cover higher prices in Year 1. In NJ District 7 the number will be 60%. Any diversion of carbon fee revenue to other programs will raise these numbers.
TWO: Fee revenue returned to the private economy will help fund
- conventional actions to conserve energy, like better home insulation;
- not-yet-conventional, but doable actions, like home heating controls that will automatically heat to comfort level only those rooms that are occupied, and keep the temperature low in other rooms; and
- implementation of new technologies that are now on the drawing board or lab bench, or perhaps not even dreamed of.
THREE: Serious thinking about global warming—and the associated problems of climate change, sea level rise, and ocean acidification—is long term. We can shoot for and perhaps almost reach zero CO2 emissions in 30 or 40 years, but we must still learn how to remove CO2 from the atmosphere to bring its concentration back to an acceptable level. CFD legislation must be designed for the long term. It will be OK to set a mid-term target and cover some shorter period. But the legislation should be designed so that CFD can be extended with little fuss when the time comes to do so.
The ideal carbon fee schedule will start low and rise steadily for the period covered by the legislation, say 15 or 20 years. No one can accurately predict the effects on CO2 emissions or on the economy. There should be provision for a periodic in-depth and comprehensive review of CFD outcomes, together with a new assessment of the facts and thinking re the warming threat, and followed by a revision of the fee schedule—either up or down–if this is deemed appropriate. I recommend this review every 4 or 6 years.
(Here I part from the CCL proposal for an annual review. Interval would be too short and review would become pro forma.)
There will be political pressures during these reviews to scale back the fee schedule. These will come from people who have been unwilling or unable to adapt to rising prices, and from oil and gas companies who no longer have coal competition and don’t want higher fees on their products.
To counter these pressures it will be essential to have broad public support for CFD. The best way to build this support is to produce a steadily rising stream of dividends, and to manage it in a manner that is seen to be competent, efficient, and fair. The larger the dividend stream, the greater will be the public support.
FOUR: A successful long-term CFD program will require bipartisan support—at the start and over the long term. By returning all fee revenue to households, we will allow actors in the private sector to experiment and determine the best ways to use less energy and to use non-fossil energies. We will not have to expand government beyond a small agency to allocate and distribute carbon dividends.
This should help bring on board conservatives who like the free market and dislike government regulation.
(A personal recommendation not yet endorsed by my colleagues: Give the new agency the name Carbon Dividend Administration or CDA. Congressional conservatives, who now underfund and strangle the IRS, will have a hard time underfunding an agency with “dividend” in its name.)
FIVE: CCL has promoted CFD as revenue neutral from the beginning. Rather than use fee revenue to offset other taxes, it has promised to return all of it to households. When talking to people I have found this to be a strong selling point.
Some people—usually cynical, middle age men—hear this, laugh derisively, and say: “The government will never give the money back.” They are some of the strongest objectors to CFD that I have met. Any diversion of fee revenue to other government programs, that have been selected by a Congress that few people trust, will play into the hands of these objectors.
Bill Allen 07-29-18