Cap & Dividend: A Clear Winner
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ShareA new bipartisan climate bill offers a much smarter way to cut emissions—auction off pollution permits and distribute the proceeds to everyone.
December 11, 2009. Senator Maria Cantwell (D-WA) introduced a bill today that is a much better approach to reducing climate change than the cap and trade bill circulating in the Senate. Her bill, which she co-sponsored with Senator Susan Collins (R-ME), uses cap and dividend to reduce climate emissions and avoids the pitfalls and boom-and-bust cycles inherent in carbon trading. (Peter Barnes proposed this idea in YES! Magazine in 2001).
Why is this a better idea?
First, polluters would pay for the right to pollute; they would buy carbon emissions permits at an auction, instead of getting the majority of them for free. This sends the right market signal—emit carbon, and you'll have to pay.
Carbon permits would be required at the point where fossil fuel energy enters the economy. The number of greenhouse gas emissions allowances is reduced regularly by amounts that businesses can plan for. There are no offsets—these would be real reductions in climate changing emissions.
Second, American families strained by the poor economy would benefit. Each person would get an equal share of the proceeds from the auction. It works like the oil trust funds in Alaska, where each resident gets about $1,300 per year for their share of the state's oil royalties. As long as our economy remains dependent on fossil fuels, prices for energy and energy-intensive products will rise. But the rebate will offset those price increases—Cantwell says it will mean most families are in about the same place financially. Those who buy carbon-free energy, drive energy efficient cars, or buy products produced locally with little fossil fuels will come out ahead, though, while those who drive gas guzzlers will pay more through the higher price of fuel. So it sends the right signal to consumers, too.
Politically, it should go over much better than cap and trade. Who wouldn't like to get a check in the mail each month that represents your share of the carbon auction revenues? Three quarters of the revenues would be distributed equally to all Americans. The other quarter will go to clean energy research and development, for projects that reduce non-CO2 greenhouse gas emissions, and for aid to communities and workers who need special help making the transition to a clean energy economy.
And here's the frosting on the cake. Instead of cap and trade, which would set up a massive Wall Street system of buying and selling carbon, this auction is for energy producers and importers, only—not brokers and speculators.
What's not to like? This is a far better proposal than the cap and trade proposals that has Wall Street salivating. One caveat, though. Carbon reductions proposed in the bill are probably not enough to avert dangerous climate change. But if there is flexibility to step up the reductions as the science get firmer and the public backing grows, this approach could be just right.
Cap-dividend is still wrong way.
If we use cap-and-trade or this fee-dividend, it not only destroy America's economy further, but both approaches will make things worse, not better. The reason is that it will send production to places like China, Brazil and India who have much higher CO2 emissions per KW (little to no pollution controls).
There are very few ways that will solve this issue.
The easiest is a percentage retail tax on ALL GOODS (domestic AND imported) based on the CO2 from which this good AND its prime sub-component came from. That is we do not care about the sources of CO2. We care about how much CO2 flowed into a region and how much came out.
Ideally, we would also add in distance as part of the calculations. The reason is that the further something is, the more CO2 for transportation. Right now, there is no penalty for it. BUT, it is possible that WTO would fight that.
Due to the global economy being harsh, this rate would be a percentage of a base rate
Here is an easy example:
First, we set the base rate at 5%. We will increase it yearly. How much depends on needs.
Assume widgetA is a product entirely from Canada. That is the part was produced there and the largest sub-component was also from Canada. According to sat readings, Canada has a low CO2 PER SQ KM. So, they might pay say 5% of the base rate. In this case, it would be .5%.
OTH, assume something is produced in America along with the largest sub-component. Since we emit much higher CO2 per sq km, we might pay 50% of the 5%. That is, we tax ourselves at 2.5%.
Finally, whichever nations show up as having the highest CO2 per SQ KM ( a much fairer way to measure than CO2 per capita), they would pay 100% of the 5% on their goods. That could be China, but I doubt it since they are a large country. As such, it is likely to be a country with high development, but in a small area.
I do think that distance SHOULD be part of this equation. Far too often, marginal items are being shipped all over the world. That is a mistake. Those should be produced closer to homes.
This approach also helps those nations that lower their CO2, but lowering their rate. One of the issues is that a lower rate tends to mean more sales, which leads to high emissions ( a feedback). This tax will actually provide the negative feedback to prevent.
In addition, businesses will want to cheat and game the system. So will politicians. This prevents it. The reason is that a nations size is easy to calculate and the measurements are by sats. Most importantly, it is all over the world. Few nations will take large emissions to have ALL OF THEIR goods suffer higher tax rates. They WILL take new business if they have low or even lower emissions.
The money can and should be fed back to improving our nations emissions as well as helping undeveloped nations lower their emissions.