Information for policy makers on climate income / carbon fee and dividend

This page updated May 2021

If you are a UK policymaker, here are some fact-finding links to support research into:

  • whether a climate income (carbon fee & dividend CF&D) is the correct mechanism for curbing a substantial amount of fossil fuel-generated greenhouse gas emissions (GHGs).
  • how a UK CF&D carbon pricing instrument (CPI) can be shaped.

Here is a summary by CCL UK co-founder, Judy Hindley.

To discuss this in more depth, in the first instance, please contact the helpdesk

Carbon Fee & Dividend in depth (prepared by CCL EU)

UK reports

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.

As a Conservative, I feel queasy when I read of the Government “picking winners” in low carbon technologies, and setting five-year plans for industrial sectors. It feels more like 1930s-style Soviet practice than a free market dynamo of innovation and growth.

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……

Placing a price on carbon creates the incentive for 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.

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.

  • 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))

Working with an emissions trading system (ETS)

– The CF&D instrument, methodology, coverage and fairness and how it would work with an ETS.

This briefing was prepared for the EU Inception Impact Assessment – Ares(2020)1350037, Carbon Border Adjustment mechanism, for the European Green Deal

How does it work in Canada?

British Columbia, Canada has had CF&D since 2008; it was then introduced to other Canadian provinces without a similarly effective carbon price (ie a backstop) in January 2019.

Overview of Canada’s CPI

Canada’s 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.

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)

How does it work in Switzerland?

Progress in the US

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 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 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).

Other organisations