What is Carbon Fee and Dividend?
The basics of the Fee and Dividend policy are explained on our Policy page. Check out the 2-minute video to learn more.
Why do we need Carbon Fee and Dividend?
Primarily, it is meant to drive the decarbonisation of our economy from the bottom up. This is achieved by giving a financial incentive to households and the businesses that serve them to seek out products that consume less or no carbon. It also helps mitigate the indirect health and environmental costs of climate damage, which are impossible to quantify on an individual basis, but which residents are already paying through taxes to cover disaster relief and infrastructure degradation, higher insurance costs, and higher healthcare costs. The burden of the carbon fee should not be piled on top of those; it should be borne by the fossil energy companies and their owners and investors. But since energy companies will pass some portion of the carbon fee costs to consumers, families will need the Dividends to help offset those extra costs in an equitable way, while also providing households with more cash to invest in ways to reduce their carbon footprints.
How often would dividends be paid out?
In the US, CCL suggests the per capita dividend could be made on a monthly basis. Canada pays out once a year (source). Policy Exchange [2018 report] suggests an annual loan against a future dividend payout which would enable citizens to invest in clean energy technology to break away from fossil fuels.
How would the amount of dividend per household be calculated?
This is to be determined. If the UK follows the recommendations for Carbon Fee and Dividend in the US, it would look something as follows:
- Numbers of adults and children eligible to receive Dividends. Data would likely be drawn from HMRC – a combination of National Insurance numbers and Child Reference Numbers. As not everyone has such a number further solutions would need to be identified.
- The total number of per capita adult Dividends would be the number of eligible adults plus 50 percent of the number of eligible children.
- Gross Carbon Fee revenue for the year, as estimated for budgetary purposes.
- Expenses of Fee collection and Dividend program operation, which would be deducted from gross Carbon Fee revenues to determine the net Carbon Fee revenue available for distribution by Dividends.
- After the initial year, calculate the amount of the previous aggregate overpayment or underpayment of Carbon Fee revenue via the Dividend program.
- Net Carbon Fee revenue available for the year, determined by combining C, D, and E.
- Per capita annual adult Dividend, determined by dividing F by B.
- Per capita monthly adult Dividend, determined by dividing G by 12.
Could the Dividend be combined with other monthly payments like state pensions or universal credit?
This may be possible in some cases, but CCL considers it to be unwise for three reasons.
- Combining Dividend payments with other government payments would diminish the visibility of the Dividend payment, which may be an important component of support for the entire Carbon Fee program.
- Creating combined payments would not be a simple matter of merging two payment lists, because each household gets one and only one payment even if two adults and up to two children are eligible. By contrast, government benefits payments are made to individual payees.
- Given the extremely low cost of making payments by electronic transfers to bank accounts, it might not be cost-effective to combine payments even in cases where it is feasible. The extra cost of combining payments might even exceed the government’s costs in making two separate payments.
Would the frequency of payments at the program’s start be the same as at the end?
Not necessarily. In the early years, payments could be made quarterly or even semiannually to expedite implementation of the program and to eliminate small payments. Inquiries and complaints tend to cluster just after payments are received; thus, if the payments were made so that each month only one-third or one-sixth of residents received a Dividend payment, the number of telephone calls and letters would be lower and spread out more evenly during the year. That would reduce the need for government or contractor staff to handle inquiries, complaints, and changes in eligibility. As the size of Dividend payments increases, payments could be made more frequently, eventually monthly. It is estimated it would take 2 years for full implementation and monthly Dividends.
What are the major costs associated with this program?
There are 3 sources of administrative cost associated with this program:
- One-time startup costs, including initiating a program, developing or purchasing systems and software, developing procedures, and recruiting, hiring, and training staff.
- Ongoing costs, including employees, office space, communications and data processing and storage equipment, recordkeeping, etc.
- Transaction-related costs, especially handling inquiries and resolving errors (the actual cost depends on complexity of the problem and employee time to resolve). The per transaction costs of electronic payment transfers would be extremely low.
Would citizens living abroad be eligible for the Dividend?
Generally, no. To the extent that it could be determined from information on record on a consistent basis, some provision might be envisioned for those who reside in the UK for part of the year. With the carbon fee’s border adjustment and existing carbon pricing regimes in most other wealthy countries, such individuals would not bear the costs of the fee.
These FAQs are based on a study in the US on dividend delivery as well as a report by Policy Exchange entitled “The Future of Carbon Pricing. Implementing an independent carbon tax with dividends in the UK”.