Reaping the Dividends of Reduced Emissions

California residents stand to gain a lot from the state's efforts to cap greenhouse gases: less pollution, greener infrastructure, and a yearly check in the mailbox.
Solar house, photo by longyoung

Residents can use dividends for renewable energy or to make their homes more energy efficient, offsetting higher carbon prices.

Photo by longyoung

Copenhagen produced practically nothing. Congress seems paralyzed. Powerful lobbies say we should delay responding to the climate crisis until after the economy recovers. But some good news recently came out of California, where a state advisory committee recommended a policy that caps greenhouse emissions and sends money back to the people.

As part of its implementation of AB32, the Global Warming Solutions Act of 2006, the California Environmental Protection Agency convened a panel of economists, academics, and legal experts to form the Economic and Allocation Advisory Committee (EAAC), which presented its findings on January 11th, 2010. Despite intense pressure from utilities and petroleum lobbyists, who asked for free allowances and tons of questionable offsets, the EAAC recommended that the state sell (auction) 100 percent of emissions permits, requiring polluters to pay for the emissions they produce and to reduce the amount of greenhouse gases they emit over time. 

The revenues collected would be used in a variety of ways, but the majority of the money would be returned to California households through either cash "dividends" or tax cuts. The EAAC states that climate dividends could be sent to Californians as checks in the mail or through an electronic funds transfer system, and cites the precedent of the Alaska Permanent Fund, which sends revenues from fees on oil companies back to Alaskans each year.

The EAAC report notes that dividends provide several benefits. They preserve public ownership of a common asset—the air we breathe—which we all share equally. And returning the bulk of allowance value to households helps residents afford energy-saving reforms like retrofitting their homes. It's also a boon to low-income people who can least afford increases in energy and fuel prices.

The EAAC proposes the cap and dividend approach for "roughly 75 percent" of allowance value, with the remaining 25 percent "devoted to financing investments and other public expenditure," including research and development of clean energy technologies. The EAAC estimates that if the 75 percent dividend recommendation were implemented, each California family of four would receive an annual dividend of $388 in 2012, rising to $1,036 in 2020, adding a total of $7,004 to family incomes over the eight-year program.

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The 75-25 split between consumers and investments is also found in a bill being considered in the U.S. Senate, the Carbon Limits and Energy for American Renewal (CLEAR) Act, introduced by Senators Maria Cantwell (D-Washington) and Susan Collins (R-Maine). The Cantwell CLEAR Act provides an alternative to the climate bill that passed the U.S. House, known as Waxman-Markey. Groups such as Friends of the Earth and Greenpeace criticized Waxman-Markey for giving away free allowances to the utilities (once again "on behalf" of consumers) and for allowing too many iffy offsets that dilute the market for permits. The Senate version of Waxman-Markey has not moved for several months. If the Senate remains stalled, then California's AB32 will proceed, and in 2012 Californians will face a carbon price, but perhaps also receive dividends in return.

But don't go to the ATM just yet. Numerous political obstacles remain. Meg Whitman, the former CEO of eBay who is now running for Governor, has called for the suspension of AB32 due to fears of impacts on the state's ailing economy, and State Assemblyman Dan Logue is collecting signatures for a statewide initiative to halt the emissions reductions as long as state unemployment is above 5.5 percent. The utilities still want handouts, and will be pressuring the California Air Resources Board (CARB) and elected officials to provide them with free allowances, or to run the consumer "rebates" through their utility bills (prolonging the low-carbon transition by shielding consumers from the price of carbon).

The EAAC recommendations also offered the option of tax cuts to consumers instead of dividends. Unfortunately, tax cuts favor wealthier families, and provide a less visible (and therefore less politically popular) use of allowance value. Dividends could also be hijacked by legislators who would prefer to spend the money on other projects or fill the State's gaping budget deficit. Spending the revenues on other uses is tempting, but by neglecting consumers, it could accidentally help build the constituency for Whitman, Logue, and other enemies of the carbon cap. Dividend supporters prefer to reserve a majority of permit revenues for consumers to help households deal with potential price impacts. With political support for AB32 solidified, the private sector will respond to the escalating carbon price by investing in new technologies, and legislators can fund worthy energy projects by instituting carbon fees and diverting subsidies away from fossil fuels.

Although it faces obstacles, the EAAC recommendation is remarkable in that it puts people first, bypassing powerful lobbyists and special interests. Perhaps such linking of climate solutions with household economics will counteract the economic scare tactics of climate deniers, give some momentum to the cap and dividend approach in the CLEAR Act, and help climate activists get past their post-Copenhagen blues.