Global climate change — caused by warming of Earth’s atmosphere — is a threat to people’s livelihoods around the world. Scientists overwhelmingly agree that warming is spurred by greenhouse gas emissions that occur when coal, oil and gas are burned to produce electricity and power vehicles. Every nation, including the United States, must find ways to reduce emissions.
A key step must be to raise the price of carbon fuels, to reduce use and make alternative sources of energy competitive. Carbon taxes are one way to proceed. Another approach sets a carbon cap and gradually ratchets it down — creating a descending ceiling for overall carbon energy use. Companies are issued permits to produce or use carbon energy within the cap. Permits can be given away, sold or a combination of the two — and companies can be allowed to trade permits. No matter how the price of carbon fuels is raised, we still need to ask who pays the extra costs and who benefits — and we need to consider the implications for American democracy.
Legislators in Washington, D.C., have already discovered how hard it is to pass either carbon taxes or a carbon cap system through both houses of the U.S. Congress.
• During the administration of Bill Clinton, representatives who voted for a small carbon tax on gasoline — which failed to pass the Senate — were criticized and defeated in the next election, causing Congress to shy away from carbon taxes in the future.
• In 2009, the Waxman-Markey American Clean Energy and Security bill passed the House of Representatives. This aimed to create a kind of carbon cap system for the whole economy, setting gradually declining limits on greenhouse gas emissions. According to the bill, the federal government would create permits for emissions-producing companies. At first, 85 percent of them would be given away, and the remaining 15 percent would be auctioned off — and emitters could also buy and sell them.
The idea was to encourage a gradual transition to cleaner energy sources, while allowing electric companies, for example, to keep prices down for their customers. Even though this approach would have been very generous to industry, many business lobbies and ideological conservatives rallied to keep a similar bill from passing in the Senate.
The 2009 Waxman-Markey bill relied on a politics of insider bargains. Supporters tried to give just enough payoffs to different industries to cobble together and pass legislation. Most Americans heard little about what was going on, unless they saw TV ads claiming that the bill would impose big new taxes.
There is a better, more democratic alternative. It’s called cap-and-dividend. This approach to reducing carbon emissions defines environmental improvement as a shared good in which all of us have a stake. It specifies an upper limit on carbon emissions. During the transition to a greener economy, polluting industries pay for permits, and each year the proceeds are divided up and given in equal dividends to every American.
Here is how cap-and-dividend would work in detail:
• A national carbon cap is set, based on targets for steady reductions in greenhouse gases. Each year permits are auctioned — not given away — to utilities, energy companies and other major users of carbon fuels.
• Companies buying the permits have an incentive to use more efficient technologies and move toward investing in and selling cleaner sources of energy. Companies would also pass along much of the cost of the permits to their consumers.
• Consumers — businesses and families — will spend less on energy if they use less carbon energy and switch to cleaner or green sources. But there still would be an issue of fairness because low-income households have to spend more of their limited incomes on energy.
• To correct the unfairness and give all Americans a stake in the tax on polluters, the U.S. government would divide the money raised in permit auctions into equal annual “dividend” payments sent to each and every citizen.
Permits auctions would bring in a lot of money. For example, if the permit price were $200 per ton of carbon, the revenue would be about $200 billion per year — enough to give each American a dividend of $678. Even if permit prices were set lower — and some of the money raised was used to invest in green technologies — a family of four could still get around $1,200 a year.
Cap-and-dividend legislation has been introduced for debate in Congress by Rep. Chris van Hollen, D-Maryland, and by Sens. Susan Collins, R-Maine, and Maria Cantwell, D-Washington. This approach is easy for all citizens to understand. All Americans would get help to pay energy costs — and the help would mean the most to low-income families. Seventy percent of families would get a net economic benefit, a majority in every state. And people would do better if they saved energy or switched to green sources.
The silver lining in the failure of earlier carbon-reduction legislation is that America can now find a better way forward. With the cap-and-dividend approach, we can reduce greenhouse gas emissions, distribute the costs and benefits fairly, and build widespread understanding and popular support for the fight against global warming and the transition to a green economy.
Michael W. Howard is a professor of philosophy at the University of Maine and co-editor of two recent books on Alaska’s Permanent Fund Dividend. He is a member of the Maine Regional Network, part of the Scholars Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear in the BDN every other week.