Policy in depth

This page updated July 2024

This page aims to assemble published information about carbon pricing in relation to Climate Income in the UK and globally.

Summary of the principle of Climate Income/Carbon fee and dividend by CCL UK co-founder, Judy Hindley.

Background information on the new political situation from July 2024.

The latest research on how transformative a global basic income financed by pricing pollution could be. (June 2024) and CCL news article.

Climate Policy Dashboard  online tracker which monitors the progress the government is making against the objectives stated in the Committee on Climate Change’s 6th Carbon Budget.

The principle of carbon pricing per se is often criticised as being ineffective and there have been few evaluations to prove or disprove its worth. A new meta-analysis of the published data has been published in Nature Communications (May 2024) which states that emission reductions were real and ranged from -4% to -15% after correcting for publication bias. This contradicts earlier less systematic reviews which concluded that carbon pricing had little effect on emissions reductions. (Note this study does not address the equitability of the schemes and does not include the Canadian Climate Action Incentive Payment, the largest Climate Income scheme, as no studies were available at the time).

Philosophical argument for CF&D in a post pandemic world. (2021) Discusses the three most common objections to CF&D – Carbon taxes won’t change anyone’s behaviour, will increase inequalities and carbon taxes are superfluous and what is really needed is fundamental, systematic change.

For a good recent round up of reports on the economic benefits of CF&D see also the CCL US summary dated Feb 2021 in US section below.

Laser Talks

Laser talks are short articles (300 words or less), designed to give key information which with practice will enable you to have the facts at your fingertips!

Citizens Climate International Laser Talks (concentrating on the global issues perspective).

CCL Canada Laser Talks Page  (includes a directory), a lot of the talks will be specific to the Canadian situation. 

The CCL Canada LASER Talks for De-Mystifying Carbon Pricing is specifically a guide to dealing with the current situation in Canada (January 2024), which discusses how to counter common criticisms of Climate Income and general misinformation. It also has links to information about Motivational Interviewing.

This one requires you to login but accounts are free and very useful for the resources: https://community.citizensclimate.org/resources/item/19/225

The EN-ROADS Climate Solutions Simulator developed by MIT enables the interactive demonstration of the effect of climate policies including carbon pricing. For more information see The argument for a worldwide carbon pricing policy section below. Training videos are available on the EN-ROADS website.

When you engage with a politician or the media don’t forget that the UK does already have carbon pricing (ETS). The aim of CCL UK is to argue for a fairer and more effective form of carbon pricing with a dividend, rather than carbon pricing per se. See section on Switzerland and Austria for examples of how CI could be implemented alongside ETS.

Progress in the UK

This section is written in reverse order with the most recent information first.

For information on the challenges facing the new UK Government see the Carbon Brief article Experts: What is the Labour government’s top priority for meeting UK climate targets?. Carbon Brief is a ‘UK-based website covering the latest developments in climate science, climate policy and energy policy’.

In August 2022 CCL UK wrote a report on how Climate Income could be a solution to the Cost of Living crisis and produced statistics on predicted carbon fee and dividend revenues (see Nice in theory but what kind of sums are we talking about?, Frequently Asked Questions). This was followed up by an article in May 2024 by James Collis of Citizens’ Climate Europe, further detailing how Climate Income could be implemented alongside the current UK carbon pricing regime. (see Climate Income page and The world has changed since 2021, how appropriate would Climate Income be for the UK now?, Frequently Asked Questions).

In April 2022 the UBI Centre published The progressivity of a UK carbon dividend…..we find that levying a fee on each tonne of carbon emissions, and redistributing the proceeds equally to all UK residents, would have a progressive distributional impact. A carbon dividend would significantly reduce poverty and inequality, and the larger the prigram, the more of each it does.

In October 2021 the influential right wing think tank The Centre for Policy Studies published a report on ‘Pricing Pollution Properly’ which proposes climate income.

Earlier that month the Royal Society of Arts (RSA) published a briefing based on a survey of Conservative voter’s attitudes about climate change. The report stated that voters are less reluctant than the government presumes and it calls for several measures including a carbon dividend. Demos also produced a report of a survey of 22,000 people on what policies should be implemented to cut emissions. Among the favoured policies were a Carbon fee and dividend (although not equally distributed).

In July 2021 the cross party Environmental Justice Commission and the left-leaning IPPR think tank published Fairness and Opportunity: A people powered plan for the green transition. This called for a ‘people’s dividend’.

Distributional Impacts of a Carbon Price in the UK (Grantham Institute (London School of Economics), March 2020) states that :

Judicious use of carbon tax revenues can help ensure distributional
fairness and protection for low-income and fuel-poor households
while driving the transition to net-zero emissions in the UK by 2050.

Distributional Impacts of Carbon Pricing on Households (May 2020) (Carbon Pricing Leadership Coalition, UK is a member; briefing prepared by Climate Strategies)

Zero C Campaign Reports (2020)

Pricing Carbon during the economic recovery from the COVID-19 pandemic (Grantham Institute (London School of Economics), May 2020)

But by setting a strong market signal through a meaningful carbon price, the dynamic is changed: instead of trying to replace the market, we free it to solve the problem of carbon emissions, and without spending a penny of taxpayers’ money.

The Future of UK Carbon Pricing (UK Government BEIS report, June 2020). The section pertaining to CF&D (pp.38-9) refers to CCL’s responses to the government consultation……

Advocates of the approach highlight that a well-designed scheme would have social and environmental benefits, equitably distributing the revenues and stimulating investment in low carbon technologies……..emissions to be reduced in a cost effective and technology-neutral way, while mobilising the private sector to invest in emissions reduction technologies and measures.

Carbon Border Adjustment for the European Green Deal (March 2020) Argues the CBAM would work better with a CF&D style carbon fee applied across the economy rather than the ETS system.

Global lessons in carbon taxes for the UK Policy Brief (Grantham Institute (LSE), August 2019)

Making Carbon Pricing Work for Citizens (July 2018) Oxford Martin School, the Mercator Research Institute on Global Commons and Climate Change, and the London School of Economics and Political Science (LSE)…..traditional economic lessons on efficiency and equity are subsidiary to the primary challenge of garnering greater political acceptability. One of the paper’s authors, Lord Nicholas Stern, IG Patel Chair of Economics and Government, LSE, wrote in The Economics of Climate Change: The Stern Review, (2006) that…’without action, the overall costs of climate change will be equivalent to losing at least 5% of global gross domestic product (GDP) each year, now and forever’.

The Future of Carbon Pricing (Policy Exchange, July 2018)……An economy-wide carbon tax paid by both domestic and international producers would prevent carbon leakage, level the playing field for Britain’s heavy industry, fund a dividend to be paid to taxpayers and tackle climate change.

………economy-wide carbon pricing could on its own reduce emissions 80% by 2050. Furthermore, studies of the US economy demonstrate that sensibly implemented, economy-wide carbon pricing can actually boost, rather than reduce, GDP (see REMI report).

Report of the High-Level Commission on Carbon Prices (May 2017, Carbon Pricing Leadership Coalition)

How does it work in Canada?

British Columbia has had CF&D since 2008. The policy has cut emissions by 5 to 15% from what they would have otherwise been, encouraging the purchase of more fuel-efficient cars, and decreasing consumption of natural gas use, all while supporting increased employment. A 2014 report detailed the success of the policy after 6 years.

Analytical Advisors, an Ottawa-based firm that monitors Canada’s clean technology sector, reported in CCL news in (20/9/16) that sales in British Columbia’s clean technology industry increased by 48 percent in two years after the introduction of the province’s revenue neutral carbon tax in 2008. 

Inspired by the results in British Columbia the Federal Government adopted CF&D (known in Canada as the Climate Action Incentive payment) as a backstop measure for states which hadn’t adopted their own carbon pricing policy in January 2019. It was introduced at $20 per tonne of GHG (emissions) in 2019, rising by $10 pa until 2022, then by $15, rising to $170 per tonne by 2030.

Carbon fee and dividend in Canada (report by CCL Europe)

Canada’s official greenhouse gas inventory

Canada’s estimated results of the federal carbon pollution pricing system: Reports the estimated effects of emissions reductions measures. It states that Carbon pricing will prevent 80-90 MT of Greenhouse gas emissions by 2022, Clean Fuel Standard 30 MT by 2030, Methane regulations 21MT by 2025, and Coal Phase Out 16 MT by 2030.

Reviewing the Fiscal and Distributional Analysis of the Federal Carbon Pricing System (Feb 4th 2020)

Modelling of a carbon fee and dividend by think tank, Clean Prosperity (Nov, 2020)

Canada’s strengthened climate plan to create jobs and support people, communities and the planet. (Dec 2020)

An explanatory article about the tax published in August 2021. What is Canada’s National Carbon Tax and how does it affect us?

Podcast (and transcript) of an interview by Akshat Rathi of Bloomberg Green with Catherine Mckenna about how the implementation of the Climate Action Incentive payment. (13/7/23)

How Canada figured out a carbon tax and gave the money back – Zero – Omny.fm

Canadian Government information and guidance:

Have you claimed the climate action incentive payment yet? – Canada.ca

Climate action incentive payment – Canada.ca

Carbon pollution pricing – Canada.ca

Carbon rebate calculator Fair Path Forward

Report which details the effect of the climate legislation on household budgets, September 2023 https://cleanenergycanada.org/report/a-clean-bill/

There is more information in the laser talks itemised above and Citizens’ Climate Lobby Canada.

Note that there are still issues to be resolved with the GGPPA which CCL Canada are currently campaigning on. One of the major issues was that the dividend wasn’t transparent enough which enabled conservative leaning parties to claim it was lower than reality, an issue highlighted in this Nature Climate Change article…Limited impacts of carbon tax rebate programmes on public support for carbon pricing | Nature Climate Change

 The article examined the response to CF&D in Switzerland and Canada. It acknowledged that the Canadian Government have realised the problem and are resolving it…”The government of Canada has announced that future rebates, which will steadily increase in value, will be delivered to households directly. However, in Switzerland, voters rejected an increase in the country’s carbon tax rate, alongside increased rebates, in June 2021 when faced with intense politicisation of policy costs by opponents”.

A September 2023 report, ‘A Clean Bill – Making the switch to clean energy cuts carbon and cost from household energy bills’, explained the effects of the climate legislation on householders. It stated… “Under the federal government’s system, the carbon price costs an average of $578 annually per household, while the average climate action incentive payment is $712 per year. Put simply, most Canadians are actually better off, receiving more money back than they pay.”

In the autumn of 2023 it was announced that the carbon price was to be removed from heating oil for three years. This article by CleanTechnica discusses the real impact of the climate action incentive payment and the reason for the 3 year exemption. As in the UK many people dependent on heating oil are the least logistically able to retrofit and the most hard hit by the fuel price crisis of the past year.

The conservative kick back on carbon pricing has prompted a defence by Canadian Economists in 2024, submitting an Open Letter. CCL Canada has produced a comprehensive guide on the value of carbon pricing and specifically the Canadian model.

How does it work in Switzerland?

Climate Dividend – the exponential way forward in emission pricing (White paper prepared by Cleantech21, Switzerland, March 2020). Switzerland has put a fee on heating oil/gas since 2008 with two thirds returned dividend and one third to a building renovation fund. Current price (2020) is USD100/tCO2

Taxing Energy Use 2019: Country Note – Switzerland

How does it work in Austria?

The Klimabonus program puts a price on climate-damaging pollution and returns revenues to individuals and families, taking into account the availability of public transport and heating options (as in Canada). It was adopted as a national carbon price in advance of adopting the ETS 2 extension to buildings and transport. Citizens’ Climate Lobby Europe campaigns for Climate Income as a legally valid, fair and effective implementation of ETS2.

In just the first month of operation:

  • 7,414,021 people in Austria have received deposits in their bank accounts;
  • 1,269,835 vouchers have been sent;
  • 3.987 billion euros have been disbursed so far.

From 2023, the Klimabonus will vary based on the region you live in — as originally intended. The amount will then depend on how good the infrastructure and public transport connections are at your place of residence. One thing is certain: Those who opt for climate-friendly behaviour will now have more of the Klimabonus in their pockets.

Progress in the US

 A steadily rising carbon tax and dividend was the way forward favoured by over 3,600 US economists, including 28 Nobel laureates in a letter published on 17/1/2019. The group has stated that “a carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary”, continuing “all revenues should be returned directly to citizens… to maximize fairness and political viability”.  This is the largest public statement of economists in history. The Citizens Climate Lobby US website details the economic and social benefits such a tax could bring to the US, including preventing 4.5 million deaths from air pollution over 50 years.

Article on the CCL US conference “Call to Action to Care for Our Common Home” (May 15th, 2021). The article gives a succinct summary of the situation in the US in May 2021 and a good explanation of the case for Carbon Fee and Dividend.

A report by CCL US summarising recent research up to February 2021 on the economic benefits of Carbon fee and dividend.

Discussion of the differences between the Clean Electricity Standards and the CF&D approach to decarbonisation.

Why Fee and Dividend Will Reduce Emissions Faster Than Other Carbon Pricing Policy Options Miller and Hansen, Nov 2019) was a response to the HR Select Committee on the Climate Crisis. While referring to the situation in the US it has a good explanation of the difference between the ETS /Cap and Trade method of carbon pricing as practised in the EU and UK and CF&D, (p.5) ….

Cap vs. Cap
As mentioned above the “cap” in Cap and Trade is quite different from the “cap” in Cap and Dividend or other Cap policies. In Cap and Trade, the cap only applies to major emitters who are required to purchase emission permits. In other cap polices, the cap is on the total CO2 equivalent of fossil fuels extracted from the ground so it covers the entire fossil fuel economy (within a nation, but no practical way to enforce a global cap has been proposed). Also, in Cap and Trade the permits can be traded or offset with sometimes questionable “emissions reduction” programs. For example, under Cap and Trade, the cap on emissions can be exceeded if an emitter buys an offset that may, for example, involve someone promising not to cut down a forest in the future. In other cap policies, the cap is on the extraction of fossil fuels (by a given nation) and there are no offsets (except for actual sequestration of CO2) so it is a real cap.

James Hansen on Cap and Trade vs Fee & Dividend. James Hansen on Cap and Trade vs Fee & Dividend.

A summary of the argument for CF&D from The Storms of My Grandchildren, 2009……

Fee-and-dividend is a progressive tax. For example, my friend Gore (I hope he is still my friend after this book is published) (will) pay a heck of a lot more than $9,000 in added costs because he owns large houses and flies around the world a lot. Given the current distribution of wealth and lifestyles, about 40 percent of people will pay more in added costs than they will get back in their dividend. For the most part, it will be those with high incomes who pay more, but not always. A poor guy who commutes a hundred miles to work every day in a clunker may pay more than he gets in his dividend (although perhaps not, if he lives in a modest-size house, doesn’t do a lot of recreational motoring, and rarely takes airplane trips). Sorry, poor guy, but it is those kinds of practices that will be changed in the long run, by a rising carbon fee. The cost will encourage the poor guy to figure out more efficient transportation or live closer to his work.

An example of the effects of a carbon tax without a redistributive element (Sweden)

The distributional effects of a carbon tax: The role of income inequality (Grantham Institute (London School of Economics), September 2020)The distributional effects of a carbon tax: The role of income inequality (Grantham Institute (London School of Economics), September 2020)

The argument for a worldwide carbon pricing policy

In 2016, the 195 nations who signed the Paris Agreement asked the Intergovernmental Panel on Climate Change (IPCC) to study the implications of a 1.5°C global temperature target. Their report, entitled Global Warming of 1.5°C, was released in October 2018. This report clarifies the benefits of holding the modern-day rise in global average temperature to 1.5°C rather than 2.0°C. The report states that high prices on Greenhouse gas emissions will be necessary to cost-effectively stay below 1.5°C. To prevent a tax revolt, the money collected must be returned to the people.

The IPCC report underscores the importance of quickly adopting strong carbon pricing. Most importantly, Climate Income enacted globally would cut emissions 50 percent by 2034, a level consistent with the IPCC recommendation for staying below 1.5°C. The graph models the price rising by $10 pa.

The EN-ROADS Policy Simulator from Climate Interactive can be used to test various plans for controlling global temperatures:

  • Current projections indicate the planet is on track for a baseline global warming 3.6ºC by 2100.
  • Ending fossil fuel subsidies made no material difference: 3.6ºC
  • Subsidizing renewables barely budged the global temperature: 3.5ºC
  • Subsidizing renewables + aggressively taxing Fossil Fuels: 3.0ºC
  • Pricing greenhouse gas (carbon) pollution as per IPCC recommendations: 2.6ºC.

The C-Roads Climate Change Policy Simulator can be used to test the effectiveness of climate policies applied to various countries or groups such as India, China, US, EU and other developed/developing nations (ie adhering to the IPCC 2018 report suggestion to peak emissions by 2025, reducing by 8% pa to a 40% reduction by 2030 to keep 1.5 Celsius in sight). The simulator reinforces the need for the developed world to support the developing world on their path to net zero.

This edition of the IMF Finance and Development magazine (Dec 2019) is dedicated to the economics of climate change.

In the article “Putting a price on pollution: Carbon-pricing strategies could hold the key to meeting the world’s climate stabilization goals ” (p16) Ian Parry, principal environmental fiscal policy expert, IMF Fiscal Affairs Department, puts the case for carbon pricing with a mitigating/redistributive element (he doesn’t directly refer to CF&D) and against emission trading systems….

And although trading systems provide more certainty in respect to future emissions, they provide less certainty regarding emission prices, which might deter clean-technology investment.

There is also an article by Mark Carney, then Governor of the Bank of England, “Fifty Shades of Green: The world needs a new, sustainable financial system to stop runaway climate change” (p.13).

The world needs a “radical” shift towards renewables to reach net-zero emissions by 2050 and secure the 1.5C goal.

It argues for a total transformation of the energy systems that underpin our economies, with no new oil or gas sites to be developed beyond this year.

Protecting the poor with a carbon tax and equal per capita dividend Nature Climate Change, Nov 2021.The benefit of imposing an  international Climate Income system, especially if the dividend could be returned on an equal per capita basis globally.

TOLL GATES AND MONEY PUMPS: Why carbon taxation could be a simple, fair and transformative policy instrument., Autonomy, March 2022. The report by the Autonomy think tank outlines how a globally applied carbon fee and dividend policy would be extremely effective at lifting the poorest countries out of poverty and more than a billion people above the global poverty line, as well as combating climate change.

Utilizing basic income to create a sustainable, poverty-free tomorrow, Cell Reports Sustainability, June 2024. The largest study of its kind, based on an analysis of 186 countries….

We posit that BI can be a pivotal instrument in the global pursuit of poverty alleviation and “nature-positive” sustainable development. Crucially, its execution must be designed to yield a dual triumph: assuaging economic insecurity, especially among the world’s low-income populations, while also ensuring intergenerational equity by safeguarding the environment for posterity.

Other CCL websites:

Citizens’ Climate Lobby Canada

Citizens’ Climate Lobby (US)

Citizens’ Climate Europe

Citizens’ Climate Earth (International)

Citizens’ Climate Lobby Australia