The Climate Leadership Council proposed in early February a carbon fee and dividend as a key policy to combat climate change. The authors are conservatives, including Republican former Secretaries of State James Baker and George Schultz, former Treasury Secretary Henry Paulson and two chairs from the Council of Economic Advisers in the Ronald Reagan and George W. Bush administrations. While there are questionable aspects of the proposal, people across the political spectrum should welcome a steadily rising carbon fee and dividend.
At a time when the president and many Republicans in Congress make light of or outright deny the problem of anthropogenic climate change, it is encouraging to see people with impeccable conservative credentials proposing a policy also favored by many Democrats and environmentalists such as Bill McKibben. The dividend, estimated to be $2,000 for a family of four in the first year, would be a significant benefit especially to poor and working class families, and if revenue-neutral, a majority of households will get a dividend greater than what they pay in higher energy costs.
The authors propose starting the fee at $40 per ton of carbon dioxide and increasing it annually at the rate of inflation plus 2 percent. At this rate, the United States would achieve a 28 percent reduction in CO2 emissions below 2005 levels by 2025, the high end of the U.S. commitment in the Paris climate agreement, according to the council’s analysis. While not as much as we need, it would be a big step beyond the status quo, and it could be strengthened as the political will rises to do so. Foreign importers trying to undercut U.S. producers through the use of cheap polluting technology would be slapped with a border tax, inducing them to reduce their emissions.
The authors propose a tradeoff between the carbon fee and regulation. They claim, “To build and sustain a bipartisan consensus for a regulatory rollback of this magnitude, the initial carbon tax rate should be set to exceed the emissions reductions of current Regulations.”
If this is indeed the effect, the tradeoff is worth it with respect to the U.S. Environmental Protection Agency’s Clean Power Plan. Charles Komanoff of the Carbon Tax Center said in a statement in response to the council’s proposal that “well over 80 percent of the plan’s targeted reduction in electricity-sector emissions for 2030 had already been achieved by the end of 2016.” An economy-wide carbon fee will bring us closer to the Paris target.
What is worrisome is the Climate Leadership Council’s apparently wider scope of reduction of regulatory power of the government, which serves many purposes unrelated to climate change. And unless the carbon fee is set high enough and is assured of rising regularly, to give away the EPA’s authority to regulate carbon emissions might be a fool’s bargain. The challenge is making sure that any tradeoff gives us a robust climate fee and dividend.
A carbon fee and dividend will have other beneficial effects. The model suggested here does not give us enough detail, but a similar proposal by Citizens’ Climate Lobby — which ramps up more quickly and yields a higher dividend — is projected to create millions of new jobs, improve air quality and not inhibit growth.
Limiting global warming to 2 degrees Centigrade will likely require more than a carbon fee alone. We also may need direct investment in research and development of alternative technologies. We need to honor our promise in the Paris agreement to aid poor countries in the transition to a non-carbon future, so that they do not face an intolerable dilemma between economic development and environmental safety, and will, therefore, agree to reduce their emissions. And we may need to manage a scaling down of our consumption in a manner that does not cause widespread misery.
There may be disagreement on these issues, but we can agree that a carbon fee is indispensable for reducing emissions and that using the revenue for dividends is equitable and politically prudent. The transition from fossil fuels is a difficult, long-term process. A carbon fee sends the right signal to the market about the environmental cost of carbon, and charges the polluters, while the dividend spreads the financial benefit to everyone over the entire period of the fee, rewarding most those who make energy-wise decisions.
Michael Howard is a professor of philosophy at the University of Maine in Orono. He also is a member of Citizens’ Climate Lobby.