2 January 2008Dot EarthAndrew C. Revkin
Peter Barnes, a founder of Working Assets, the fund making “socially responsible” investments, has long studied various bills and proposals for cutting emissions of carbon dioxide to limit global warming. He sees fatal flaws in every one. So he has come up with a new formula that he says uniquely addresses the most inconvenient truth about climate policy: It will be expensive.
As he put it recently: “Fighting climate change is going to cost all of us money. That’s because the price of dumping carbon into the atmosphere must, necessarily, rise. Whether the price rise is prompted by a tax or a cap makes no difference — we will all pay more.”
He proposes a “cap and dividend” system that charges a rising fee on sources of greenhouse-gas emissions (to propel a long-term shift away from such pollution) and returns the revenue to citizens, rich or poor, through a direct payment not unlike the checks that Alaska residents get every year from fees paid to the state by oil companies.
Writing recently on the On the Commons blog, he said:
The simplest and fairest way to protect the poor and middle class is to give equal rebates to everyone. The money would come from either a carbon tax, or an auction of carbon emission permits…. Just as every Alaska resident receives an equal dividend from revenue from state oil leases, so every American would get an equal dividend from carbon permit auctions. The dividends would be wired monthly into people’s bank accounts, much like Social Security payments. They’d help families pay their monthly bills.
There are several nice features of such a plan. One is that it’s automatic — as energy prices rise, so do dividends. Another is that how you fare depends on what you do. The more energy you use, the more you pay. Since everyone gets the same amount back, you gain if you conserve and lose if you guzzle. This is fair to everyone, whether rich or poor. And it takes politicians off the hook for rising energy prices. If voters complain, politicians can truthfully say, “The market sets prices, and you determine by your own energy use whether you gain or lose. If you conserve, you come out ahead.”
We met briefly not long ago and then had time for a brief text chat exploring his plan.Q. Why do you think what might be called a “third way” is needed to get traction on curbing greenhouse gases?
A. There’s a lot of discussion about taxing carbon and capping carbon. For example, Al Gore proposes taxing carbon and rebating the revenue to people who pay payroll taxes. But in Congress, the preference seems to be for a cap on actual emitters, which is cumbersome to administer and could lead to windfall profits for large polluters. A third way would be to cap carbon where it enters the economy, auction the permits and rebate the revenue to all Americans equally. This combines the simplicity and fairness of a revenue-neutral carbon tax with the efficacy of an economy-wide cap.Q. You’ve mentioned the other ways, but haven’t said why the third way is ‘better’ (necessary). What is wrong with the other approaches? (By the way, in his Nobel Prize speech, Al Gore embraces both cap and trade, Kyoto-style, and a carbon tax with revenue returned to the people. Can you have both?)
A. The main problem with carbon taxes is that they don’t physically limit carbon emissions; they only raise the price. Since we’re effectively addicted to fossil fuels, the tax has to get very high to persuade us to cut emissions by 80 percent. American politicians don’t have the stomach to raise carbon taxes that high.
The problem with carbon caps is that if done wrong, they won’t reduce emissions sufficiently. They’ll impose regressive price increases on consumers, and they’ll needlessly reward large polluters. On the other hand, there is a way to do carbon capping right — which is the “third way” suggested earlier.Q. There’ve been attempts at “feebates” and other mixes of disincentives and incentives using the tax system for a long time. Have any worked, serving as a model for this proposal?
A. I think feebates on new cars are a good idea. They haven’t been tried, but they would definitely help. People who buy gas guzzlers would pay more, and people who buy gas sippers would get a rebate. This could complement higher fuel efficiency standards. But it still doesn’t guarantee we’ll reduce emissions 80 percent by 2050, which has to be the goal.
Re can you have both a carbon tax and a carbon cap? You probably can, but I don’t see why you’d want to. A carbon cap, done right, would be sufficient. Like a tax, it would raise carbon prices, but at the same time it would ensure actual reductions to predetermined goals.Q. I’ve asked a few folks this question: So, you’re in an elevator with one of the frontrunners in the presidential race (of either party). It gets stuck for a minute between floors, and the candidate has no handlers with him/her. What do you say? (Please let readers know if you’re already advising any of them.)A. I’m not advising any candidates directly, but if I were stopped in the elevator, here’s what I’d say:
We have to reduce global warming emissions 80 percent by 2050, and we can’t afford to miss this target. What we need above all is a fair and simple way to force carbon emissions down and stimulate private investment in clean energy sources. An economy-wide carbon cap that gradually declines over 40 years is essential.
It’s also essential to protect families from the higher prices that limiting fossil fuel burning will inevitably cause. Ordinary families will pay thousands of dollars more each year when serious carbon reductions kick in. There’ll be a political backlash that will halt carbon reductions in their tracks unless we protect families. The way to do that is with equal monthly dividends, wired to everyone’s bank accounts, from the revenue earned by auctioning carbon emission permits. As energy prices rise, so will dividends — it’s automatic price protection. Also, guzzlers will pay more than they get back, while conservers will get back more than they pay in. This will be as popular as Social Security. Meanwhile, the descending cap and higher prices will stimulate a wave of private investment in green power.Q. The candidate asks you, “But how do I get the big energy-dependent companies/donors to go along (both those extracting fossil fuels and making products that depend on them)?” Then the elevator starts to move…
A. First I push the Stop button (just kidding). Companies that use lots of energy have to be protected too. The way to do that is with border fees on imports from countries with low carbon prices. That protects manufacturers. In the end, though, we need a global deal. Which requires U.S. action.Q. So the candidate steps out and The Atmosphere steps in (yep, the global atmosphere). It overheard you. It says, “Hey, I see all this CO2 pumping out of China and India. I see a Congress that treats anything even resembling a tax as radioactive.Why should I take you seriously?
A. Climate change is a function not just of current emissions, but also of cumulative emissions. The U.S. is responsible for three times as much cumulative CO2 as any other country. Our per capita usage rate is also four times China’s. So yes, China and India are emitting lot of CO2 today, and ultimately they must participate in a global solution. But their point is, we have to reduce first. And they are right.
I’d add to the above that the premise of “cap and dividend” is that the atmosphere belongs to everyone equally. The central formula — from each according to their use of the atmosphere, to each in equal share — is fair to poor, middle class and rich alike. The poor benefit most, however, because they pollute the least.
Q. Now I’m Jane Diller, in Akron, Ohio. I’m stressed, overworked, underinsured, have a two-worker family, and you’re telling me I’m going to face thousands of dollars in extra costs, but don’t worry, Uncle Sam will write me a check?
A. It should be automatic, like Social Security. Auction revenue goes into a trust fund. Dividends come out every month. A computer could run the program. Once it’s set up, politicians couldn’t/wouldn’t touch it. Also, if the family conserves energy, it can come out ahead. It will get more back in dividends than it pays in higher prices. That is not only fair, it is the right set of rewards and incentives.Q. O.K., Ms. Diller is a bit more assuaged. But she, like a lot of voters, remains doubtful, disengaged, and is not quick to embrace “planetary emergency” messages when winter still follows fall. So she’s getting distracted now by dinner and the heap of bills that needs to be cleared from the kitchen table. What gets here excited about this change, instead of distrustful and semi-scared?
A. Well, I have to assume she understands the problem and wants to solve it for the sake of her children. I have to assume she wants to solve it in a way that is fair and not burdensome, and that rewards her for doing her bit. “Cap and Dividend” would do all that. It would solve the problem and (if she conserves) not deplete her bank account. Indeed, I guarantee she will like getting those monthly transfers into her bank account. It will offset the pain of higher prices.
That was the end of my discussion with Peter Barnes, but now is your chance to pretend that you’re in an elevator — with him. What would you ask him? And/or what is your real-world proposal for limiting the buildup of greenhouse gases pushing on the Earth’s thermostat?
