Opinion | A national carbon fee and dividend program deserves progressives’ support

Progressives don’t need to be reminded about the importance of acting on climate change. Few other issues we face will affect so many so dramatically while still managing to remain near the bottom of the priority list for many elected officials. And it’s certainly true that the election of November 2016 provided no grounds for optimism—it truly is a dreadful scene in Washington, D.C. In light of that, local action to reduce our carbon emissions and live more sustainably is critical, and Thurston County has a number of excellent organizations pushing for just that. Here in Washington State, while not yet where we’d like to be, we remain leaders in policies to reduce our collective carbon footprint.

US is the world’s second largest carbon emitter

That said, climate change is a global problem, and even the best policies and behaviors we can adopt on a local level will have limited effect on the global atmosphere. Thus, we still need action on a national and worldwide scale that can hasten our off-ramp from the fossil fuel-based economy. The US is responsible for far more carbon now in the atmosphere than any other country and is currently the second largest carbon emitter (China passed us a few years ago). For  for better or worse, we are the single country most able to influence policies of others. Is there any hope, given the current political situation, that the federal government would be willing to move forward soon enough to mitigate the worst of the effects that will increasingly burden us, our children, and our grandchildren?

Enacting a Carbon Fee & Dividend is realistic

I’m going to argue that a Carbon Fee and Dividend (CFD) approach, which is the policy prescription of the Citizens Climate Lobby (CCL) provides us just such a hope. I believe that getting a CFD enacted is not unrealistic even for the current congress and thus we need to push our representatives to support it. Further, I’m going to argue that the CFD proposal manages, simultaneously, to be both progressive and one that can actually garner some Republican support (I’m also going to argue that progressives ought to be OK with that last thought).

How a carbon fee & dividend would work

In brief, CFD would have the Treasury Department impose a fee of $15 per ton of CO2 equivalent emissions on all fuels containing carbon at the point where they first enter the economy. https://citizensclimatelobby.org/carbon-fee-and-dividend/  This fee would then increase by $10/ton yearly until we achieved a 90% reduction of carbon emissions relative to 1990 levels.

The effect of pricing carbon this way would be to gently but inexorably wrench the levers of our economy away from fossil fuels toward clean renewables. We know that, in isolation, such a pricing scheme would be regressive: energy costs are a disproportionately large share of day-to-day expense for people of modest means. For this reason, CFD returns 100% of the net proceeds from the fee (that is, all funds minus only administration costs), back to the public on a per capita basis (typically via direct deposit, although other options would be available). A couple would count as 2 people, kids under 18 would count for half each (thus a family of 4 with youngsters would get “per capita dividend X 3), and it would be capped at 2 kids/family (to avoid overly large payments to very large families). Predictions are dicey, but to give you a sense of scale, we are talking about $1,000 to $3,000 returned annually to a family of four.

Benefits of a revenue-neutral approach

Now, revenue neutrality might not seem as progressive as a policy that directs specific benefits to needy segments of the population, but consider a bit more. Per capita dividends are, by nature, progressive because they constitute a larger share of family budgets to low-income than wealthy folks. Studies CCL has commissioned by independent economic consultants (summary and pdf available at https://citizensclimatelobby.org/remi-report/) have indicated that under such a dividend program, 53% of households (58% of the population) would get a net economic benefit despite paying more for energy. Importantly, the proportion of households in the lowest fifth percentile of income coming out ahead would be 86% (with only 2% coming out worse and 12% about the same), and among the next lowest fifth, 72% would come out ahead (with 9% coming out worse).

Wealthy folks with multiple homes and overseas vacations would pay modestly more in energy costs than they’d get back in their dividend, but they could afford to. So CFD manages to incentivize all of us to move toward renewables (it is, after all, a problem we all share) without burdening those with the least means. CFD on average also provides a similar benefit vs. cost to people of color relative to white folks (https://citizensclimatelobby.org/household-impact-study/).

Why CF&D is the best answer

Is making carbon emissions more expensive the best way to address climate change? It’s clear to me the answer is yes. In the short-term, regulatory devices including the requirement that auto manufacturers produce more efficient vehicles may be useful and necessary (here there could be difficulty convincing Republicans). In the long-term though, pricing is what drives our collective decisions. Recall how Trump’s absurd promises to ‘bring back coal’ are undercut by the competitive advantage currently possessed by natural gas. Similarly, when the economic dials are all pointing toward solar, wind, and efficiency, there will be no turning back. Carbon cap-and-trade has an allure, but is susceptible to the gaming of powerful corporations, and has typically underperformed. In contrast, CFD has support not only from economists, but from climate scientists such as James Hansen.

A word more about revenue neutrality, a core principle of the CFD approach. There is a legitimate argument from progressives that an even better approach would be to deliberately apply funds obtained by a carbon tax to improving the lives of those disproportionately affected by climate change. This could involve  investing more directly in renewables or providing training funds for those whose employment is disrupted by the transition to clean fuels.

Washington’s failed carbon tax initiative

I consider myself a progressive, but would argue that a revenue neutral approach is still preferable for the following reasons: 1) first, as I’ve argued above, returning carbon revenues directly to households on a per capita basis via a dividend (as in the CCL proposal) is redistributive, providing more benefit to those most in need; 2) if instead all carbon revenues were allocated programmatically, lower income folks would be vulnerable to the regressive nature of taxing gasoline and heating oil, and it’s very likely that even the best tailored of programs would overlook some needy folks; 3) promising to fund specific new programs—desirable as they are—from carbon fee money is risky (as California has recently discovered) because it’s impossible to predict exactly how much revenue will be generated.

Washington’s failed 2016 carbon tax initiative 1732 was premised on revenue neutrality, and was vulnerable to the concern that it could end up revenue negative. Good as the prognostications of Yoram Bauman and others no doubt were, one could always fear that the sales tax reduction, B&O tax reduction, and funding of the state earned income tax credit would sop up more than the carbon tax would produce. I suspect this, more than anything else, reduced the support initiative I732 would otherwise have gotten from public officials and editorial boards.

But the CFD proposal evades these difficulties. Excepting only the (relatively minor) administration costs, the amount of the dividend exactly equals the amount of the revenue divided by the number of families in the country. It is calculated only after the carbon fee is collected. Thus, CFD is insulated against the fear that it will exacerbate government debt.

The need for a “border adjustment tax”

One more component of Citizen Climate Lobby proposed policy deserves mention:  the “border tax adjustment.” Tariffs are assessed on goods entering the US from countries that lack carbon pricing; conversely, a rebate is paid on companies’ exports to such countries. The idea is that, once we have good carbon-reduction policies in place here, we want (now cleaner) companies and industries to stay home, and to face penalties if they choose to relocate to countries that allow them to externalize the costs of their pollution. The “border tax” says, in essence, “Yes, we want to continue trading with other countries, but not to the detriment of the global environment.”  The US, embarrassingly, lags well behind many other countries in carbon pricing, so this part is mostly just joining the rest of the world.

It’s ironic that a similar though not identical CFD proposal  has been floated by a group of conservatives known as the Climate Leadership Council. If you are leery of supporting a proposal pushed by old-guard conservatives James Baker and George Schultz, consider this: very similar proposals have also been floated by none other than Bernie Sanders and Washington’s own (recently-retired) Jim McDermott. Bernie’s proposed “Climate Protection and Justice Act” is centered on a CFD mechanism broadly similar to that advanced by CCL McDermott’s “Managed Carbon Price Act of 2014” similarly would have returned 100% of revenues in equal dividends and included a border adjustment mechanism (details on both available at https://www.carbontax.org/bills/).

The power of partnering across political lines

So sure, maintain skepticism and look at the details, but now is no time to dismiss the potential power of partnering where we can with folks we often disagree with. Instead, let’s take this as a modest indication that messages about climate change are finally getting through (at least to some!).  Suggested alternatives to CFD are likely to be revenue positive, and that means increasing taxes. While many of us might not mind that if funds are spent for the public good, Republicans are simply not going to support that, regardless of the argument.

We can hope for the day when those of that mind-set are no longer in power, but the climate isn’t waiting around. By all means, let’s continue working with more thoughtful and progressive legislators at all levels, but the best possible climate mitigation program will do us little good if not enacted until many years in the future. We really don’t have the luxury of time on this issue, and that means we must find support across the political spectrum. For our future, for our planet, for justice and equity, Carbon Fee and Dividend needs to play a central role in US economic and environmental policy.

Rich Harris oversees moose, mountain goats and bighorn sheep for the state of Washington, and lived in Montana and other countries.  He thinks about his daughter when he thinks about looming climate change.

2 Responses to “Opinion | A national carbon fee and dividend program deserves progressives’ support”

  1. David Foutch

    Nice article, Rich – thank you. But you didn’t mention the bipartisan Climate Solutions Caucus in the U.S. House of Representatives, which has tripled in size since January, now with 52 members (26 D and 26 R), including Washington’s Derek Kilmer and Dave Reichert.

  2. Rod Hanson

    An excellent article. I agree 100%. The climate is changing at an accelerating rate. Each of us must do whatever we can, no matter how minor, to slow the process down.