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James K. Boyce is a senior fellow at the Political Economy Research Institute at the University of Massachusetts at Amherst, and author of “The Case for Carbon Dividends.” He will give a talk, “Carbon Dividends as Universal Property,” at 12:30 p.m. on Feb. 4 via Zoom at the University of Maine (for details, click here). Boyce belongs to the Scholars Strategy Network, whose members’ columns appear in the BDN every other week.
The litmus test for an effective climate policy is that it must keep enough fossil fuels in the ground to prevent global temperatures from rising more than 1.5 to 2 degrees Celsius (2.7 to 3.6 degrees Fahrenheit) above pre-industrial levels, the target set by the Paris agreement. The Biden administration’s climate plan, centered on clean energy standards and infrastructure investment, will be a step in this direction. But whether it will manage to hit the target is another question.
There is only one way to be truly certain that we cut emissions at the pace and scale needed to pass the climate litmus test: We must clamp a hard ceiling on the total fossil carbon we let into the nation’s economy and ratchet it down year by year. An 85 percent cut in emissions between now and 2050, for example, translates into reductions of 6 percent per year.
To restrict the amount of carbon coming into the economy (and ultimately into the atmosphere), the government can auction permits up to the ceiling — much as the northeastern states now do in the Regional Greenhouse Gas Initiative for power plants. At every pipeline terminal and coal mine head, corporations would have to relinquish one permit for each ton of carbon dioxide that will be released when their fuel is burned.
If other climate policies succeed in cutting demand for fossil fuels at the required rate, the ceiling becomes redundant and the permit price falls to zero (or to the floor price set by a carbon tax, if there is one). But if other measures fall short, the ceiling ensures we hit the target.
A hard ceiling is not the only tool in the climate policy kit, but it’s a crucial one. Think of it as an insurance policy to guarantee that the nation’s goals are met. Champions of other policies should not object to adding a ceiling to be on the safe side.
If the ceiling turns out to be binding, an inevitable consequence is that fossil fuel prices will go up. The impact will be felt by gasoline consumers at the pump. It will be felt in the costs of natural gas and coal-fired electricity. In the absence of compensating policies, this effect could provoke a public backlash.
The risk was dramatically shown in the Yellow Vest movement that rocked France after President Emmanuel Macron’s 2018 announcement of a fuel price hike to fight climate change. “Macron worries about the end of the world,” complained one protester. “We worry about the end of the month.” Many Americans share the same worry — for good reason.
Fortunately, there is a straightforward way to reverse the effect of higher fuel prices on the incomes of working people: auction the permits (rather than giving them free of charge to corporations as in old “cap-and-trade” proposals) and return all or most of the revenue equally to every American as dividends. The dividends would be similar to the stimulus checks of the COVID-19 pandemic, but paid monthly or quarterly and funded by the carbon permit revenue.
Carbon dividends are gaining support on both sides of the political aisle. The idea’s bipartisan appeal was foreshadowed in 2009 when it was introduced in a Senate bill co-sponsored by Democrat Maria Cantwell of Washington and Republican Susan Collins of Maine.
With carbon dividends, everyone still has an incentive to reduce their own carbon footprint. Those who fly a lot in airplanes, or heat and cool bigger houses, pay more in higher fuel prices than they get back in dividends. But the majority of households, who consume lower-than-average amounts of carbon (because the average is pulled up by the outsized carbon footprints of the wealthy), come out ahead financially, not even counting the environmental benefits of the transition to clean energy.
A hard ceiling on fossil fuels coupled with carbon dividends will safeguard both the climate and the incomes of working people – and thereby earn durable public support for a policy that meets the climate litmus test.