Many economists and climate scientists see a steady rise in the price of carbon as the key to reducing CO2 and other greenhouse gas emissions, and averting catastrophic climate change. The most obvious way to raise the price of carbon, and so make renewable energy more competitive in the market, is to impose a carbon tax, ratcheting it up year by year. (Alternatively, a cap can be set on the amount of carbon that can be introduced into the atmosphere, and emission permits auctioned. Either way, substantial revenue will be generated.)
What should be done with the revenue? The most common proposals are for a) green energy investments and research, b) tax shifting, and c) dividends returned to citizens. Some bills before Congress combine elements of one or more of these.
In recent blog posts, climate policy commentator David Roberts has questioned the wisdom of carbon pricing, compared with regulation and direct investment in alternative energy. And he is skeptical about using revenue for dividends compared with alternative uses. Full disclosure—I am quoted as a supporter of carbon fee and dividend policy.
I am not opposed to investment in green energy research and development. While I would prefer to see such investment funded from general tax revenue, I am not opposed to some of the revenue from a carbon fee being used for such purposes. But I remain a supporter of a carbon dividend, and do not find Roberts’s doubts particularly persuasive.
First, as Peter Dorman has noted, Roberts’s preferred policies are not up to the scale of the problem. Roberts favors a mix of regulations and investments such as have brought down emissions in some Scandinavian countries. The results there are impressive. But we need to be reducing carbon emissions in the US by over 4 percent per year (closer to 8 percent in fact).
The projected total emissions reductions from the Clean Power Plan regulations would be only 7% below 2005 levels by 2030, since they do not address transportation or industry sectors. Renewable energy is making strides, and would develop faster with more public investment. But is there evidence that public investment on a scale consistent with more than 4 percent reductions in carbon emissions is politically more feasible than carbon pricing? Carbon pricing is needed to fill that large gap.
Second, concerning the use of carbon fee revenue, Roberts cites evidence that “investing in renewables outpolls dividends all along the political spectrum.” His evidence, however, does not show a large difference in preferences: 60 percent favor renewables, versus 56 percent for a dividend. What he does not consider is how this picture might change if the people polled were more familiar with the still rather obscure idea of fee and dividend, and whether the respondents were informed of the size and steady increase of the carbon fee.
To bring down emissions, the price of carbon must rise steadily over decades. It is hard to think of a precedent for such a policy, but then it is hard to think of a policy challenge as great as that of climate change. I agree with Roberts that we need more evidence, but it is plausible that if people were to be polled with full awareness of the size of the problem, and the cost to themselves, fee and dividend would start to perform better in such polls.
Roberts characterizes my and James Boyce’s suggestion that social movements can make fee and dividend policy politically feasible as the “underpants gnome” of all dividend arguments. “No one has any idea how to conjure up a grassroots movement around an abstract policy idea.” Has he not heard of Citizens Climate Lobby, which has active chapters in every state? (Full disclosure, I am a member.) Beyond this movement specifically organized around fee and dividend, the idea is not to conjure a grassroots movement from scratch, but to work with existing movements already motivated by concern about climate change. This includes 350.org (a leader of which, Bill McKibben, is a carbon fee and dividend supporter), the fossil fuel divestment movement that has swept across college campuses, and others.
As Peter Dorman has argued, Roberts has assumed falsely that public opinion, such as that in the polls he cites, determines political outcomes. But for the majority of the population, there is no correlation between the percent of people supporting a policy of any kind and the probability of its becoming law. Policies get adopted when they are supported by economic elites, or when they are demanded by mass mobilizations. “What really matters is the development of a dedicated mass movement for serious climate policy.”
The remaining question is whether fee and dividend is the sort of policy that can unite the already existing movements. This is not, as Roberts charges, anti-politics, flowing from “disdain for compromise and tradeoffs” that come with democratic politics. Compromise and tradeoffs are required in movement politics as much as in the crafting of successful legislation. That is why, although I think a carbon dividend will be key to the long term success of climate change policy, I believe we should be open to alternative uses of at least some of the revenue from carbon pricing. But because this is a long-term struggle, we need to keep our sights on the goal, the outlines of which are dictated by science not wishful thinking or opinion polls, and we need to recommend policies adequate to that goal.
For a majority of households to have a net financial benefit from a fee and dividend policy, most of the revenue should be returned as dividends. However the use of the revenue is likely to remain a divisive issue among carbon fee supporters. As a way of unifying them, perhaps the allocation between dividends and other uses of the revenue could be decided by popular vote, as proposed by Peter Dorman. Although such a process would considerably complicate legislation for a carbon fee, it might have the added benefit of educating and involving more of the people affected, further building support for the resulting climate policy.