This page updated November 2023
If you are a UK policymaker, lobbying or writing to the press scroll down for a great bank of resources to support you. If you need more support please contact the helpdesk we’re only too pleased to offer expert guidance.
An important study of the need for carbon pricing and how to achieve public acceptability was published in 2018: Making carbon pricing work for citizens….. “our findings suggest lump-sum dividends are more stable over time [than green spending or tax cuts] particularly in countries bogged down with issues of economic inequality, political distrust, and polarisation. If their benefits are clearly communicated to the public, they might outperform other mechanisms in terms of 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’.
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.
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).
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))
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.
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.
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.
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)
Canadian Government information and guidance:
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/
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
Austria introduced Klimabonus in July 2022
According to the October 2022 CCI newsletter the Klimabonus program puts a price on climate-damaging pollution and returns revenues to individuals and families.
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
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.
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.