Improving social welfare and tackling climate change are generally viewed as different policy tracks. But now a novel policy idea aims to tie them together.
“Carbon dividends” pair environmentalism with economic well-being by implementing a carbon tax and then distributing the bulk of the resulting revenue equally among all residents. The idea, which is receiving attention on both coasts and both sides of the political aisle, could represent the most viable path toward a carbon tax in the United States, as well as the beginnings of a universal basic income.
Analyses by Regional Economic Models Inc. show that the average American could gain hundreds of dollars annually from a carbon dividend, even after factoring in increases in fuel costs and other expenses. The carbon tax burden would fall most on high-income individuals with more consumptive lifestyles.
States are starting to explore the idea. California state Senator Bob Wieckowski introduced a bill in February, SB 775, that included the introduction of a carbon dividend. The bill called for a tax on carbon at the point of extraction and established a floor and ceiling on the carbon price, both of which would steadily increase over time.
The lion’s share of this revenue would be evenly distributed among all Californians. Additional funds would go to clean energy investments in disadvantaged communities and clean energy research.
In late July, after months of political wrestling, California passed a bill re-upping the cap and trade system the state has been using since 2010, effectively killing the idea of dividends. Discussions are ongoing as to whether a separate carbon dividend proposal might still have legs in California.
Other states, such as Massachusetts, Connecticut and Rhode Island, are also considering carbon dividend laws. The latter two are thought to be watching Massachusetts before they make further moves, partly because carbon taxation becomes easier when one’s neighbors are also doing it. The California proposal dealt with this by establishing a border adjustment tax, which would eliminate the incentive to move taxable activities to nearby states.
The bills in Connecticut and Rhode Island would provide 30 percent of the carbon tax revenue to employers and 40 percent to residents, with the remainder going to climate resilience and renewable energy programs.
But so far no state has gotten over the hump when it comes to carbon tax legislation. A revenue neutral carbon tax fell short at the ballot box in Washington State this past election. The bill would have used the resulting funds to lower the state sales tax and provide a dividend to low-income individuals. The measure was defeated in part because of infighting among environmental groups, some of which wanted to direct these climate-themed dollars toward climate research and clean energy implementation.
While it’s painfully obvious that we need much more clean energy research and production, these squabbles obscure the elegance of the carbon dividend idea.
While it’s painfully obvious that we need much more clean energy research and production, political squabbles obscure the elegance of the carbon dividend idea.
A carbon tax, while having the positive effect of pricing the impact of climate change into the market, has the negative effect of making life more expensive. This is perhaps the principle reason that no state in the U.S. has instituted a carbon tax, despite the consensus that it’s the best weapon to shift the market in a climate-friendly direction. A carbon dividend cancels the cost of a carbon tax for most individuals, and provides a steadily growing benefit.
For a glimpse at life with a regular dividend, we can look to the Alaska Permanent Fund, which uses oil revenues to create an annual allowance that is generally $2,000 or less per person. A recent study by the Economic Security Project found that 72 percent of Alaskans support the concept, and 40 percent say it has made “a great deal” or “quite a bit” of difference in their lives.
The carbon dividend concept is a politically and economically viable method of addressing climate change. Rather than asking the population to sacrifice a bit of economic well-being for a greater cause, the policy manages to provide economic improvements on top of climate action.
It’s a rare win-win.
Owen Poindexter is a freelance writer and co-host of the podcast The Basic Income.