I was on a conference call earlier this week focused on cap-and-dividend. (You can download the MP3.)
C&D, if you don’t recall, is a kind of hybrid cap-and-trade/carbon tax developed by Peter Barnes. A fee would be levied on fossil fuels; the revenue would be refunded to citizens on an equal per capita basis. (Imagine the Alaska Permanent Fund on a much larger scale.)
The fee would be administered where fossil fuels enter the economy—mines, wells, refineries, etc. Permits would be auctioned based on a declining cap, slowly cutting off the flow of fossil fuels into the economy and guaranteeing emission reductions. Energy prices would rise, but the bottom 60-70 percent of Americans would find the additional cost more than offset by revenue received from the program. The middle class is "made whole," as proponents put it.
"If only there were an animated video that could explain cap-and-dividend more clearly!" you say. All right:
On the call were Michael Livermore (Executive Director of the Institute for Policy Integrity), James Boyce (economics professor at the University of Massachusetts, Amherst), and Barnes (senior fellow at the Tomales Bay Institute).
I’ll admit to remaining wildly ambivalent about C&D, vexingly unable to develop the kind of clear, strident opinion the blogosphere demands.
Over the next few days I’ll do a few short posts asking questions that continue to nag me about C&D. Hopefully some of its many eloquent advocates will edumacate me. One thing that’s sure is that fun will be had by all.
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Comments
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Max8806 Posted 10:59 pm
17 Dec 2008
Cap and dividend is ultimately a wealth transfer along two lines - one good and one problematic. First, from those who consume more than average energy (both directly and indirectly - price of energy intensive goods also goes up) to those who consume less than average. This is both progressive (poor use less than rich, in absolute terms) and provides efficient incentives - conserving energy becomes more profitable. So that wealth transfer you could swing politically (I think anyway)
However there's another that I feel would kill this on the floor (of either house). It's also a very inescapable wealth transfer from those reliant on the 'old economy' to those who will profit from the new. This isn't all jockeying among CEO's - real people work in industries that will be devastated. Not every coal town or manufacturing plant that slashes workers or closes up shop entirely will get a nice shiny new GE wind turbine plant.
So you really need investment in tech R&D (now with a scientist at DOE we could use that agency to farm out funds to projects all over the country, like NIH does for health research), and assistance to affected workers (e.g. worker retraining programs). But here is the perpetual problem with cap/trade legislation. These are really important, in my opinion, but other people have different ideas and before long its too complicated and shot through with pork.
So here's my proposed compromise: Rebate half the money directly to individuals. Give the other half of the money directly to state governments, in proportion to their reliance on affected industries (its actually not a large number of industries and they're listed in every cap/trade bill so far for other reasons). It could be a simple formula ranking states based on employment per capita in these industries.
That way states most affected would have the funds to provide for their displaced workers. In fairness it really is the right thing to do to acknowledge the greater sacrifice workers in some industries would be forced to make. It also would help politically by alleviating the wealth transfer argument and, and shoring up support (votes) where most needed, at the expense of those votes who you're not gonna lose anyway.
Max Epstein
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GreenHick Posted 1:51 am
18 Dec 2008
But putting the dividend solely in the hands of consumers, while politically savvy, will have to be tempered with something more forward looking and sane than the f**king markets. (This used to be called a tax.) By dividing the revenue flows between taxes and dividends we get balance. But, as important will be to create mechanisms that channel consumption in green directions.
Thus, the fully convertible green stamps--the poor may sell them for cash to spend as they choose. Though ideally they would have a greater value when redeemed directly. But eventually, the purchaser of those stamps will spend them on green products and services. This can be an open-ended list of designated items. From hybrid cars to weatherizing to...
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amazingdrx Posted 2:25 am
18 Dec 2008
Second problem, auctioning permits amounts to selling the atmosphere. And it produces a market in the permits, bringing on the huge problems of hedge fund manipulation and permit "derivatives".
Direct per kwh subsidies are the way to incentivize GHG-free energy. And massive government production contracts, like those used in WW II war production, are the way to get mass production of GHG-saving devices like plugin hybrids, ground source heating/cooling systems, and roof mounted solar cogeneration.
Forget so-called "free" market solutions like permit auction, wether it caps, trades, or dividends as a mechanism to acheive the intended goal.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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liberalnun Posted 4:53 am
18 Dec 2008
I wholeheartedly agree that cap-and-trade is too subject to influence special interests and other sorts of shenanigans, but given that carbon taxes are not politically viable in the US, it seems to be the only option we have.
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liberalnun Posted 4:54 am
18 Dec 2008
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Ken Johnson Posted 5:36 am
18 Dec 2008
Cap'n Dividend: "Well, that's inevitable."
It certainly is inevitable if we don't invest sufficiently in low-carbon energy to meet demand. Southern California got a taste of how much energy is really worth in the 2001 energy crisis, when wholesale prices shot up by something like 3000%. No amount of "revenue recycling" will protect consumers from the economic mayhem that will ensue if emissions reductions commensurate with climate stabilization are imposed without a massive expansion of renewable energy.
Is the policy objective to reduce costs or to reduce emissions? If it is to reduce costs, it's not clear that giving consumers the money will be more protective of their long-term interests than investing it in low-carbon energy and efficiency technologies (which can pay handsome dividends [pdf] even ignoring environmental benefits). If it is to reduce emissions, how are environmental interests served by giving carbon tax revenue to American consumers, who make up less than 5% of the global population, but whose profligate consumptive behavior accounts for over 20% of global GHG emissions?
Some lessons on revenue distribution can be gleaned from Danish and Swedish policies (for CO2 and NOx, respectively).
By the way, Max, your assertion that "poor use less than rich" is untenable - even on a per-capita basis.
Another point: In the context of California's regulatory policy, "cap-and-dividend" would constitute a "tax" (not a "fee" - there is a legal distinction [10MB pdf, p. 219]), and would have to be approved by two-thirds of the legislature. So much for "political expedience".
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Max8806 Posted 1:56 am
19 Dec 2008
However, I would presume my point about the poor being relatively overcompensated given the price increases they will see would still hold. Greater emissions from the poor from using less efficient fuels generally starts with wood - and I haven't seen a cap/trade bill yet that proposes to have a permit requirement on firewood.
Max Epstein
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Jesse Jenkins Posted 8:36 am
19 Dec 2008
If we look north, not to Alaska but to Canada, we find more relevant, real world examples. In Canada, revenue neutral carbon tax and rebate programs have been tested at both the provincial and federal level and public opinion research reveals that the rebates do little to increase popular support for the proposals. Several polls found majorities of voters in BC opposed to not just the provincial carbon tax and rebate program, but to the rebates themselves. One poll found 71% of respondents and 64% of low income respondents disagreed with the Climate Action Dividends funded by the carbon tax. In addition, nearly three-quarters of respondents in that survey did not believe statements that the tax was revenue neutral.
In the October 2008 federal elections, the opposition Liberal Party ran with a carbon tax and rebate proposal dubbed "Green Shift" as their central plank. While early polls in the Spring showed a majority of Canadians supported the proposal, when the economy tanked, public opinion turned and Canadians delivered a crushing defeat to the Liberal Party, prompting the quick resignation of their leader, former environment minister Stephen Dion.
Interestingly enough, even the early polls showing support for the carbon tax showed that Canadians vastly preferred the funds be invested in renewable energy and energy efficiency. Nearly half of respondents in one poll (47%) said they preferred potential revenues be spent on "renewable energy like wind and solar power" and 16 percent said they wanted to see revenues spent on "energy efficient technologies." In contrast, only 11 percent of respondents said they would prefer the carbon tax revenues be used to cut income taxes.
Canada's experience with carbon tax and rebate mirrors public opinion research conducted in the United States by EMC Research and American Environics and commissioned by the Nathan Cummings Foundation that specifically tested the "Sky Trust" Cap and Dividend proposal advocated by Barnes and Lakoff, as well as two other policy prescriptions for global warming.
The survey found a bare majority supported the Sky Trust proposal (51%). However, support dropped to 31% of respondents once likely arguments against the proposal, including arguments that it would increase energy costs over the next several decades while creating a major new government entitlement program. A greater number of respondents support a straight cap and trade proposal (62% initial support dropping to 46% after arguments against it were made), again indicating that dividends do not increase the appeal of carbon pricing proposals and in fact may weaken public support.
The survey found the greatest public support for a proposal to invest $300 billion over ten years to develop new, low-cost clean energy technologies and industries, eliminate dependence on foreign oil, create new jobs, and reduce US carbon emissions. Investing in a new energy economy received support from 85% of respondents and the proposal was the only one to maintain support from a majority of those surveyed after likely arguments against it were made. After hearing arguments that the proposal would either raise taxes or expand the deficit and will spend hundreds of billions of dollars with no requirement that polluting industries reduce emissions, 54% of respondents still supported the proposal
As in the national Canadian poll, American voters seem to vastly prefer investments in clean energy technology over Cap and Dividend proposals.
So rather than finding evidence that Cap and Dividend strengthens the appeal of carbon pricing programs, it appears as if adding dividends or rebates to the mix actually weakens the political chances of a cap and trade bill. Better to focus on investing in making clean energy abundant and affordable - which would actually reduce the cost impacts of a cap and trade bill - rather than simply recycling revenues to shield consumers.
More on why Cap and Dividend is NOT the answer here...
Jesse Jenkins
The Breakthrough Institute
http://thebreakthrough.org
Jesse Jenkins
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WattHead - Energy News and Commentary
http://watthead.blogspot.com
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amazingdrx Posted 4:09 pm
19 Dec 2008
Yes that could happen. But from economic downturn as is the case with this drop in fossil fuel prices. Actually renewable energy will more likely stabilize fossil fuel prices to match the rate of inflation.
It can maybe replace around 4% of oil and coal demand per year in mature economies, meanwhile growing economies, even with an infusion of renewable energy tech, will tend to boost demand.
The slow nature of the conversion won't actually drop fossil prices until it takes over maybe 70% of demand, that could take a decade or more.
"...given that carbon taxes are not politically viable in the US, it seems to be the only option we have."
Subsidy diversion does raise the cost of fossil fuel, while funding subsidies for renewables. It's a tax that isn't a tax, and it's deficit neutral, no new devby to do it. Just divert the 18 billion in oil industry subsidies to renewables, add in coal, nuclear, asgribizz subsidies... that's a lot of green stimulus.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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