You can’t read very much about climate change before learning that 97% of scientists are in consensus about the man-made nature of the crisis. But what about the economists? A less well-known fact is that just as many economists agree on an impactful way to decrease pollution and create jobs while tackling climate change: put a price on carbon emissions.
While there’s a multitude of thoughts on the best way to achieve this, one particular approach is awaiting a hearing right now in the US House of Representatives: Carbon Fee and Dividend. The Energy Innovation and Carbon Dividend Act of 2019, currently slated for committee hearings, takes an approach to carbon pricing that puts an annually increasing fee on each ton of carbon emitted and returns the proceeds equally to all Americans in the form of a monthly check. And yes, you are free to do what you want with your cut.
That’s it. That’s all that happens on the surface; it’s beneath the surface where the magic happens. By assessing a fee on carbon, the worst polluters in our society can no longer cause environmental damage while avoiding the economic responsibility of their actions. It’s been a long-recognized failure of the free market that the financial costs of climate change are not recognized in the price of the fuels that cause them. As deadly fires, severe hurricanes, devastating flooding, and oppressive heat waves become more common occurrences, the bill is borne by the public through necessary increases in taxation, decreases in effective emergency response, and even in physical and mental wellbeing. Without a recognition by the market of these negative externalities, carbon-intensive activates are essentially subsidized on the collective back of individuals.
Carbon Fee and Dividend, with its annually increasing fee, sends a signal though the market that the use of carbon intensive fuels is bad for the bottom line. Starting as close to the production of these fuels as possible, a fee is assessed based on the emissions intensity of the fuel in question. As businesses are want to do, that price is passed down the line to the consumers of those fuels, who pass it down another layer, and on it goes. Very quickly, the prices of items reflect the degree to which they are fueling the climate crisis.
This means that companies that rely more heavily on carbon-intensive practices will be forced to change their production methods or else raise the price that consumers see on the shelf. Consumers, who value low cost above most other factors, will be drawn to products produced with lower emissions that are now lower in price relative to competing choices.
Compare M and M’s and Hershey’s bars, for instance. Mars, Inc., maker of candy, quick cooking rice, dog food, and other products, has already signed agreements to purchase all of the electricity used in its US operations (and many other nations) from renewable sources. The Hershey Company, on the other hand, is just starting to dip its toe in the clean energy pool. If a carbon fee were to go into force today, the price of a Hershey bar would increase more than the M and M’s sitting in the next shelf space over. That difference in price works to sway consumers toward the less carbon intensive product and prices in the damage that emissions have on us all. Carbon Fee and Dividend rewards good climate behavior instead of poor practices.
Of course, as this price signal reverberates through the market, prices for consumers do go up. This is where the second part of the plan’s namesake comes into play. All of the funds collected, save a small portion for administrative costs, are divided evenly to each adult in the nation in the form of a monthly dividend check; children would get half a share each. This check covers the increases in cost that consumers experience for their daily goods.
Since the total increase in cost is directly tied one’s level of consumption, only the largest and most carbon-tainted consumers won’t be fully compensated by their check. This prevents the carbon fee from becoming recursive; it’s estimated that the bottom 60% of consumers will be equally compensated or even come out financially ahead. As businesses begin to decarbonize their activities to escape the fee, the dividend drives the creation of jobs and economic activity. People have extra pocket money to spend, after all.
A final major piece of the plan is a protection for jobs in the United States in the form of a border adjustment for imports and exports. Under the plan, products imported to the country are assessed the carbon fee at the border while exported products are given a refund. This removes the incentive for companies to shift jobs and manufacturing overseas in order to duck the fee. It remains to be seen exactly how this will effect exports (especially the export of fossil fuels themselves) and how the World Trade Organization would look at such an adjustment. Still, it’s better have given some thought to the “emissions ducking” issue than none at all.
This approach to climate change action is good for our economy now and our lives tomorrow. That’s why a slate of organizations across the political spectrum support the Carbon Fee and Dividend approach: from the Environmental Defense Fund to the conservative-leaning Americans for Carbon Dividends (though there is still some disagreement on legislative specifics). What’s more, 68% of Americans support the Fee and Dividend approach. And luckily for us, a bipartisan group of house lawmakers does as well.
Last November, three Republican and three Democratic lawmakers introduced the Energy Innovation and Carbon Dividend Act that would establish just this kind of system. The bill was recently reintroduced in the house; again with bipartisan support. With bipartisan support, a majority of Americans on board, and a surging appetite in Washington for action on climate change, the US may finally be ready to discuss impactful climate solutions.
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