An effective and fair policy to reduce carbon emissions.
- Place an escalating fee on fossil fuels based on their emissions.
- Return all of the revenue to citizens in the form of equal dividend payments.
- Apply the fee to imports and rebate it from exports to ensure a level playing field for businesses.
Carbon Fee and Dividend is the policy that climate scientists and economists alike say is the fairest and most effective way of getting to zero carbon. Citizens’ Climate Lobby volunteers pride themselves in being FOR something rather than AGAINST things.
Why do fossil fuels continue to provide most of our energy? The reason is simple. Fossil fuels are the cheapest energy. This is in part due to their marvellous energy density and the infrastructure that has grown up around them. But there is another reason: We do not take into account their true cost to society. Effects of air and water pollution on human health are borne by us, the public. Damages from climate change are also building inexorably and they will be borne especially by our children and grandchildren.James Hansen, climate scientist and former director of NASA Goddard Institute for Space Studies.
As long as fossil fuels remain artificially cheap and profitable, their use will rise.
Correcting this market failure requires their price to account for their true social costs.
We need to include the costs of the damage done by burning fossil fuels in their price.
Our failure to do this means we’re effectively subsidising fossil fuels, and that’s no way to tackle a climate emergency.
Accounting for the true cost of fossil fuels not only creates a level-playing field for all sources of energy, but also informs consumers of the true cost-comparison of various products when making purchase decisions.
Returning the revenue to the public
100% of the revenue from the carbon fee is returned directly to households as a monthly dividend.
The majority of households, in particular those on lower incomes, will receive more in dividend than they pay out in increased energy costs. They will be better off. This will inject billions into the economy, protect family budgets, free households to make independent choices about their energy usage, spur innovation and build aggregate demand for low-carbon products at the consumer level.
Border adjustments to protect UK businesses
Import fees on products imported from countries without a price on carbon, along with rebates to UK industries exporting to those countries, will discourage businesses from relocating where they can emit more CO2 and motivate other countries to adopt similar carbon pricing policies.
Firms seeking to escape higher energy costs will be discouraged from relocating to non-compliant nations (leakage), as their products will be subject to import fees.
A rising price on greenhouse gas emissions will focus business planning on optimising investment priorities to thrive in a carbon-constrained world.
The Policy Exchange
In 2018 think tank the Policy Exchange put out a report titled “The Future of Carbon Pricing: Implementing an independent carbon tax with dividends in the UK“. This, as the title suggests, is virtually identical to Fee and Dividend, and was supported by former Labour Chancellor Alastair Darling and former Conservative Foreign Secretary William Hague. In the forward they say
In our drive to decarbonise the economy, it is important that we take people with us. If carbon taxes are seen to unduly punish that average citizen, they will fail. That is why Policy Exchange’s idea of recycling the revenue from carbon taxation back to the people in the form of a ‘carbon dividend’ is worth exploring. It would make a carbon tax both progressive and popular.
A group of economists, including 27 Nobel laureates, has publicly endorsed Fee and Dividend and there is currently a bill going through the US Congress, supported by both Republicans and Democrats, the Energy Innovation and Carbon Dividend Act.
British Columbia and Canada
In October 2018 Canada adopted fee and dividend for its provinces that do not already have carbon pricing systems in place, though one of the provinces that does, British Columbia, has been operating a system very similar to Fee and Dividend for the past decade. This is a revenue neutral carbon tax, where the revenue is returned to citizens not as dividend payments but via reductions in payroll taxes and other measures. Though a less transparent way of returning the revenue, British Columbia’s carbon tax shift has, according to a World Bank blog post, been “an environmental and economic success.”
William Nordhaus, economist and Nodel laureate
William Nordhaus, 2018’s joint winner of the Nobel prize for economics for his work on carbon pricing, says
When I talk to people about how to design a carbon price, I think the model is British Columbia. You raise electricity prices by $100 a year, but then the government gives back a dividend that lowers internet prices by $100 year. In real terms, you’re raising the price of carbon goods but lowering the prices of non-carbon-intensive goods.
He is also critical of the European Union’s cap and trade system, the EU ETS, which has not been very successful in reducing emissions.
Stephen Fitzpatrick, founder of Ovo Energy
Stephen Fitzpatrick, the founder of Ovo Energy, has launched a campaign called ZeroC, calling for a General Carbon Charge with the revenue returned to the public as carbon dividends, so essentially Fee and Dividend.
A fair and practical solution
Carbon Fee and Dividend does not increase the size of government, require new bureaucracies or directly increase government revenue. The dividend increases real disposable income, protects personal spending decisions and will recruit widespread, sustained engagement.
Finally, Carbon Fee and Dividend is elegant in its simplicity, transparent in its accessibility to public scrutiny and clear in its signals and benefits.