I should preface by saying that I am a fan of Peter Barnes. He's an emeritus board member of Redefining Progress. He's a smart and thoughtful guy. But I'm not a fan of his cap and dividend idea, mostly from an economic perspective.
First, the idea that a price on carbon would be transformative, and that we should do that first and then come in with other complementary policies later, is dangerously wrong. Transportation and building heating/electricity are the two largest contributors to carbon emissions, accounting for well over half the total. The price elasticity on transportation fuels is very low, as we've seen. With gas prices up $2 per gallon in the last three years, we're now finally seeing small reductions in driving, somewhere in the neighborhood of 4%. $2 per gallon of gas is roughly the equivalent of $200 per ton of carbon, a price impact that the failed Lieberman Warner bill wouldn't have brought until beyond 2040, if then.
Home energy use is not only terribly price inelastic (people light and heat their homes out of habit and necessity, not on the basis of price), so that we'd need very high prices to induce behavior changes, but is also characterized by a terrible market failure in information, where people have no idea what appliance costs them what in terms of electricity. As everyone should now be aware, rental units are subject to other serious energy market failures due to renter/owner split incentives and the liquidity constraints of many renters.
Second, and equally important, are the macroeconomic impacts of rising energy prices. Even with efficiency investments, the price per unit of energy will go up, and as will the price per unit of energy services for many applications. This will reduce the economic viability of some industries currently on the economic edge and make the bust part of the boom-and-bust cycle unbearable for others. Bad as it is that households might see their disposable income go down by 1 or 2% as a result of higher energy prices ($50 per ton of CO2 translates to about $1000 per year on average household income of $63,000), it will be far worse when a sizable minority of households lose 100% of their disposable income when plants start laying off. Unless we use the bulk of carbon revenues to reduce the costs of employment, we'll be driving a wedge between the blue collar left and the green left, destabilizing first the support for climate legislation, and then the climate itself.
Giving permits away to corporations is a lump-sum transfer of wealth that creates no incentives to do anything new. Giving permits away for free to individuals (or, equivalently, a cash payment of a share of carbon revenues) is another form of lump-sum transfer that only creates an incentive to remain alive, for which there is already ample incentive. The slightly higher marginal propensity to consume of the average individual as compared to the upper income owners of polluting corporations is not enough of a difference to stimulate sufficiently higher demand to offset the impacts of higher energy prices.
To make climate policy work economically, the money must be invested in energy efficiency and renewables (deployment of existing technologies should be the priority). It should also be used to keep low income households already living on the economic edge from falling into a hole they can't climb out of, for job retention and retraining for workers and industries with high energy intensity. The rest (65% or so) should be used to reduce existing taxes that currently create disincentives for job creation. I prefer cutting the payroll tax because it is the most regressive tax we have, though I'm not sure I want to wade into the social security debate.
One big potential advantage of cap and dividend (I think it needs a much better name, by the way) is that it could raise some support among a certain class of Republican who believes that the government can do no good and should be shrunk wherever possible. But I am virtually certain that, despite the fact that it is easily understandable and very good in terms of income distribution, it won't attract massive public support from people who would not support other forms of cap and trade. Telling people that climate policy won't be as bad as they think is not a message that will drive people to get on board with enthusiasm.
To get support for a climate bill, offer cash back to Americans, argues Rep. Chris Van Hollen
Comments View as Flat
setb Posted 4:24 am
13 Jun 2008
take another look
You should probably take another look since you seem to miss what I think is the core of the idea- a descending cap on carbon is the most important, and surest, thing we can do to reduce emissions.
Now, how do we make that cap politically viable enough to pass (since everyone understands that increasing costs is an unpopular political thing to do) and last through the dozens of elections and economic cycles that it has to.
I think protecting incomes is the best way to make the cap viable(as does Peter, Robert Reich, George Lakoff, McKibbon, etc).
I think everyone agrees that investment is crucial- but not more crucial than guaranteeing reductions.
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gelobter Posted 5:22 am
13 Jun 2008
Tax Rebate?
First of all, no circular firing squads please...let's remember that there is an enemy and it isn't likely anyone posting to this page. Cap-and-dividend is in the top tier of ideas to fix climate change.
But Jim's point is important and the prior post misses it...If climate-protectors do not find a way to match climate-destroyers' political capital, we won't get reductions. A yearly dividend is not unlike a "fiscal stimulus" or Bush's recent tax rebate. Go spend it on something new but it won't help you cut your dependence on fossil fuels whose price should be rising rapidly. Nor will it keep a Senator who voted for charging polluters for carbon immune from outrage over more expensive fossil fuels.
Which message do you think wins?
Senator: "I got you that check!" Citizen:"Funny, it was signed by President McCain."
or
Citizen: "Why did you vote to make it harder for me to fill my tank?" Senator: "To get you that check!"
Directly investing the proceeds from a permit system not only ensures a better and cheaper life for most Americans but it also builds big political support from those who actually implement the new investment and infrastructure it generates. And, thanks to the miracle of bonds, it lets you massively front-load the benefits and fund them on future revenue.
Cap-and-dividend was an important and elegant contribution for its time (10 years ago). Like so many other innovations in climate, we must keep the best and move forward to the better faster than is the norm in politics and policy if we're to stop global warming.
Michel Gelobter, CEO, Cooler www.climatecooler.com
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Jon Rynn Posted 5:48 am
13 Jun 2008
Michael ---
I think you made the point I was trying to make here. But people have to catch on to the idea of using funds to directly invest in infrastructure, etc., which I agree that the public has quite a bit of support for. One reason James Hansen likes the idea of cap-and-dividend is because it does not involve government, which he likes because he describes himself as a conservative.
On the other hand, you could combine any capping program with a separate program to fund the infrastructure.
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setb Posted 6:00 am
13 Jun 2008
the big buy off?
Hmmm...
I see, pay off the special interests. There's not enough money to pay off every interest that will be impacted. That's what we learned with ol' L-W.
And actually, the dividend will act as a stimulous by protecting incomes while still driving behavior changes and investment by increasing carbon costs.
There was 100 billion in green tech investment last year without a cost on carbon.
Some public investment is,of course, needed but why would we raise it regressively? And why must it come from auction revenue?
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ballmerboy Posted 6:51 am
13 Jun 2008
SkyTrust
A few points:
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bigTom Posted 7:29 am
13 Jun 2008
the dividend is progressive.
Even if the permits are regressive. Even if most consumers are too ignorant of how to change their consumption, medium and large sized businesses are pretty price sensitive, and will respond to the changing costs of their inputs. A lot of the demand response is going to have a long delay time, as in many cases new products must be designed, and then production slowly ramped up. We all recognize how much better off we would be today, if gas taxes had been raised a few years back, i.e. the early price signal would have accelerated the shift away from SUVs, that is now so crucial for surviving peak oil.
A second way to market CO2 charges, is as preparation for peak natural gas, and peak coal, which aren't very far off. Our industrial planning system, has been shown to not make very good predictions of future scarcity (it completely missed current oil spike), and CO2 emissions charges only move us onto a slightly more aggressive decarbonation schedule than geology would impose on us anyway.
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GreyFlcn Posted 7:40 am
13 Jun 2008
Worst comes to worst
A feature which gives money to low income workers might be a useful addition.
In an ideal world, we could have the bulk of that money primarily spent on venture-capital-style government R&D investment programs, and as a fund for green energy financing into green energy.
And of course "Recycled Energy" i.e. Efficiency gains.
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GreyFlcn Posted 7:45 am
13 Jun 2008
But
Frankly as said before, I still look at it like this.
- Full Auction
- No Offsets
- Use the money collected as pork to buy votes from Republican Senators, and attempt to keep it out of the operating budget of fossil fuel companies.
(For instance even if all the money was piled into CCS investment, that might still be fine. Since it's not the operating budget, and doesn't displace their operating budget.)Permalink
Pangolin Posted 2:04 pm
13 Jun 2008
We could just print the money....
and give it to people to install solar panels, geoexchange heating and air conditioning and rural wind turbines with. The Fed has effectively been printing money and giving it to the major banks to speculate on the commodities markets.
We could call it something like a 1% loan with a 40 year payback and allow payment via utility bills that would transfer with the sale of the property.
The important point is that we get on an energy program that spends energy income rather than capital (fossil fuels). If the US has can run on energy income then we will ultimately prosper. If we have to sell our children to finance imports of Saudi Oil we must either default or fail.
The current program of devaluation of the dollar to pay for energy import loans isn't very sharp. Since the minimum wage is at a fixed rate that amounts to devaluation of US labor.
What's not going to pass is an energy bill that is the size of a stack of phone books that details the precise level of pork meted out to every congressional campaign contributer.
Tax the crap out of fossil fuels. Give most of the money back on a per-capita basis and spend the rest on solar, wind and geoexchange. If need be tell the landlords to convert or lose their right to rent property.
The longer we wait the more draconian the repair program is going to be.
Put the Carbon Back
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Max8806 Posted 6:24 pm
13 Jun 2008
Investment vs Deployment
I definitely agree that cap-and-dividend is more of a catchy idea than a good one. The problem is that, while I think most people agree that its important to invest some of the revenue, people disagree on how. And so most people agree we need to invest, but reject everyone else's idea. And so Boxer tried to insert everyone's ideas to buy votes. This would give Senators political cover to vote for a Cap, but unfortunately it also gave political cover to Senators who would oppose it unconditionally, but now got to harp about mismanaged funds.
On investment though, I disagree that deployment of today's technologies should be a priority. The cap itself (and price premium it imposes) is the incentive to deploy today's technologies. There are some areas where the market disconnects exist, and so where there would be exceptions, but these are fairly limited. Investments in research should definitely play a much larger role than subsidizing deployment. Don't offer money for people to buy a Prius, spend the money on developing better batteries that will allow everyone to buy a Prius 2.0.
The bottom line is that since companies get all the revenue from installing their own wind farm or w/e, they have all the incentive to do it. Research creates benefits that no single company can capture entirely for profit, and so is the perfect (and necessary) role for government. Especially when government imposes a program that will cause serious constraints on the economy once the low-hanging fruit is picked. Its time to get started on those solutions now, so we don't get hit by a supply shock of Carbon Credits like we did on oil.
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lorna salzman Posted 11:53 pm
13 Jun 2008
Cap and dividend
The debate so far is treading the line between total free market and socialism. We need to decide where on this spectrum we want to be. To return carbon permit/tax revenue to "green" business for renewable technologies, to any degree, is what we have now: socialism for the rich. To return it equally to all citizens WITHOUT other regulations and policies is that Citizen Market in the Sky means "socialism for the poor" so that people will be able to pay their bills, but it doesn't do anything to construct a new energy economy. What was left out was the imperative need to eliminate all energy subsidies and tax breaks to all energy sectors which would not only raise the costs of fossil fuels but would level the playing field so PRIVATE investors would come in and invest in green technologies, which in turn would create new businesses and jobs. Thus, the dividend is "socialism for the poor" but ending subsidies reflects the "free market".
I shudder to think about all the hands that will reach out for technology subsidies, diminishing the pot of money that , justifiably, needs to be put into infrastructure through PUBLIC programs. We don't want to privatize our electric distribution system do we? No. We want private capital to support the development of green power by removing the barriers to genuine green entrepreneurship, not by subsidising them.
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Peter Barnes Posted 3:21 am
14 Jun 2008
Bad use of higher carbon prices
I have great esteem for Jim Barrett and Michel Gelobter, former colleagues of mine at Redefining Progress. And we agree on the most important thing: to solve the climate crisis, we must raise the price of carbon (through either a tax or a cap with auctions). Where we disagree is on what to do with the revenue.
As I understand Jim's position, he would divide the revenue from higher carbon prices four ways: (1) investments in efficiency and renewables; (2) cash for low-income families; (3) spending on job retraining and retention; and (4) 65% or so for payroll tax cuts.
I would argue that using 65% of carbon revenue for payroll tax cuts is not a wise use of so much money. First of all, if half of that goes to employers, that's just a huge windfall for WalMart, McDonald's, and other companies with lots of employees. They're not going to pass that on in higher wages; it will go straight to their bottom lines. Second, there's the non-trivial problem of how to finance Social Security. And third, what about the millions of Americans who don't pay payroll taxes -- retired people, students, stay-at-home parents, the unemployed, workers in the informal economy? They'll face higher carbon prices too, and under Jim's plan, they'd get nothing back.
What about investing in efficiency and renewables? The whole point of raising the price of carbon is to drive private investment into efficiency and renewables. Other policies -- efficiency standards, feed-in tariffs, etc. -- can also do this. So I see little need to spend public dollars here. We can get the `better and cheaper life' Michel envisions by leveraging private capital rather than by taxing the middle class.
Job training and transition assistance to impacted industries and workers are things that require public spending, but the amounts involved aren't huge, and there are other (progressive) revenue sources that can be tapped -- e.g. general revenue, a windfall profits tax on oil companies, and/or a shift of current subsidies to fossil fuels.
As for low-income families, they'd receive cash under cap and dividend.
In sum, the case for spending higher carbon prices as Jim proposes is weaker than the case for giving the money back through equal monthly dividends.
Peter Barnes http://www.capanddividend.org
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amazingdrx Posted 4:19 am
14 Jun 2008
Scam-like
All these plans seem to be scam as usual Peter. That's the problem.
Raise trillions with carbon emission permits or taxes? With the trillions comes corruption. And the well founded suspiscion that most of that money will never be invested in renewables and conservation.
Simply withdrawing the 10s of billions in subsidies to big oil, coal, nuclear, and fuel farming, completely corrupt use of tax dollars, and diverting it to per kwh subsidies, say 10 cents per kwh, to real citizens who actually generate GHG free power for the grid, with solar panels for instance, would seem to circumvent the usual corruption.
Trust the corporate/government cabal that got us into thios mess to get us out? Doesn't seem prudent.
http://amazngdrx.blogharbor.com/blog
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hapa Posted 4:33 am
14 Jun 2008
@peter barnes
i like "skytrust" idea a lot, not least because revenue-sharing is a good way of financing this entire changeover. still, i see a couple real big holes, which maybe are because i haven't read enough about the proposal.
- it looks like the dividends would be treated as income and could be seized under a bankruptcy agreement or other lien? hellish outcome ensues, similar to the payroll tax issue, but with the extra bit where usurers and skunks smell a nice meal. this may mean making it illegal to use the dividend as collateral in any way, complicating the financing of greener equipment. am i making sense?
- we know very well now that good intentions don't magically become good sense or good information in the mind of a consumer and we know that people are bad at reading even the new-improved nutritional labels. if:
a. we're basing most of our emphasis on the price-of-operation of a commodity;b. energy efficient technology tends to cost more on the shelf; and
c. your actual energy usage pattern for any class of gizmo is sort of unknown to you;
how does a person choosing a television or a blender pick the "right" one, to save money-and-planet?
sustainability regulations and economies of manufacturing scale get you somewhere near there but after that there'd need to be something stupid like turning TCO into a real number like, "this blender costs 20¢ to make a milkshake now and will cost 35¢ in 3 years or less."
heads will be spinning like crazy. maybe a big red sticker on the non-illegal guzzlers: WARNING! THIS IS A REALLY BAD BUY!
of course stores that do that kind of energy inventory for customers will be well-loved, but that's not a plan.
3) which leads to the question of whether sharing out more money to low-footprint users will increase their consumption because the shelf price dominates their decision process.
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hapa Posted 4:34 am
14 Jun 2008
should have previewed that.
it's supposed to be an outline in the style of "1.a."
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GreyFlcn Posted 5:18 am
14 Jun 2008
Correcting the carbon externality cost
The main reason for doing all this IS NOT to create a pile of money and Do something with it.
Forget that.
-
The main reason is to correct a "market-failure".
To internalize the externality-cost of carbon emissions into operating budget of existing technologies.
That way low-carbon-technologies will be able to compete with high-carbon-technologies on a level playing field which factors in the cost of carbon.
_
As for the "pile-of-money",
As long as it is kept out of the operating budget of high carbon technologies, then the cost-on-carbon will be doing it's job.
As such, the highest realistic purpose of that money should be:
- Getting the votes to make this bill becomes a reality
- Making sure that it doesn't find it's way into the operating budgets of high carbon technologies.
_In a perfect world, we could ask for better. But if we lived in a perfect world, we wouldn't have this problem in the first place. We live in reality, get used to it.
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NoImpactMan Posted 11:01 am
15 Jun 2008
What about int'l tech transfer and carbon trading?
What I don't get about cap and dividend or even Jim Barett's idea is that they both ignore the international picture.
If the developing economies are going to accept caps on their greenhouse gas emissions it is likely to be a on an equitable per capita emissions basis across the globe.
That means that the US is going to have to pay for substantial carbon credits from developing countries. Further, since the choice is between cheap coal or expensive renewables, we are going to have to find a way to subsidize renewable energy in developing economies.
How are we supposed to pay for both these things and either reduce payroll tax or send out cap and dividend checks?
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hapa Posted 6:23 pm
15 Jun 2008
@NIM
more likely i think it will be that on paper but in reality the agreement will be about progress on standard of living (unfortunately, still skewed toward "the best" people) through increasingly green means. industrialists and investors have too much power for an abstraction like an equitable political cap to mean anything.
bans on fuel sources, though, based on replacements, including efficiency, would fit better with the actual power of impoverished governments.
this doesn't have to be bought with carbon tax money, or with public money, nor does it have to be involved in carbon trading. for instance codevelopment, including public domain and open source for technology, would spread the R&D spending on a sliding scale.
another example is adaptation assistance. clearly an international security concern, but not a carbon issue, except as it is implemented alongside or united with mitigation, weatherproofing poor countries' infrastructure is a better bet for securing peace in many ways than preparation for conventional warfare.
number one way to subsidize it: bring it to industrial scale. get it to "cheap" so it's in their range.
#2 way: release poor countries from post-colonial debts.
#3 way: carbon tariffs.
#4 way: stop selling them weapons systems. no new submarines, missiles, jets, or aircraft carriers. no money for nukes, either, unless they're cost-competitive. that money should go to green energy and efficiency financing.
#5 way: stop giving them development-discounted loans for coal plants.
#6 way: start paying them higher prices for goods they manufacture, in exchange for setting high environmental and labor standards. fair trade. (peak oil's impact on trade-based development will probably be huge but maybe $200 oil won't be with us forever.)
#7 way: tell them that every new coal plant increases the likelihood of their glacier-fed water supplies dying forever.
#8 way: sit back and watch the middle players -- brazil, india, china -- figure out how to make everything they need at prices they can afford.
#9: direct investment.
and so on. i know i've read other ideas but i'm sleepy. anyway the only rule that says carbon permit or tax revenue must be the only money spent on carbon abatement is entirely in the minds of republicans and democrats who are wrong on the entire subject.
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joebhed Posted 4:01 am
16 Jun 2008
Cap and Dividend is Cap and Trade
Sounds better.
I guess I am the socialist in the crowd. (Not really)
But the carbon tax is the cheapest and quickest means to get to our solutions.
So says the CBO, not EPRI, here.
http://www.cbo.gov/ftpdocs/89xx/doc8934/02-12-Carbon.pdf
Anybody who thinks this is wrong should say why.
The almost unspoken word of the "auctionistas" is the marketing of carbon allowances.
After they're auctioned, they're traded.
Carbon futures.
They're buying them up right now.
If you like Enron (mark-to-market), hedge funds and energy speculators, then keep pushing any of those nice-sounding "dividend" options.
To my mind, they are BS.
What is wrong with the carbon tax.
OH! It's a tax.
The problem with carbon, so they say, is that it is killing our planet.
So, its planetary.
Why would we inhabitants/citizens not expect OURSELVES to pay for solving the problem?
And if a carbon tax can do it cheaper and quicker, why are we even discussing going with the slower and more expensive options?
I am afraid of a government screw-up, but most especially because the government has abdicated its responsibilities to "privatization", with the aid and abetting of the environmental community.
Carbon tax now.
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