Latest flavor of carbon legislation: “cap and dividend”

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A group of clever policy entrepreneurs led by Peter Barnes, a founder of Working Assets, has recently been talking up a variant of climate change legislation known as cap-and-dividend. If you’re interested in this sort of thing, I recommend Barnes’ Q&A over at dot earth, which is both concise and informative.

Actually, there are a few variants being pushed. At dot earth, Barnes discusses his vision for U.S. national legislation. Over at Grist, Barnes and collaborators try to apply the same concepts to the whole globe. The national version, to my mind, seems compelling. The global version, not so much.

Cap-and-dividend is similar to cap-and-trade, with a few twists:

  1. Emissions are capped, and every year the cap ratchets downward until we reach the eventual goal of a stabilized climate.
  2. The cap occurs “upstream,” meaning at the point that carbon enters the economy in the form of oil or coal. This is as opposed to capping “downstream” emissions, at the point that oil or coal is burned.
  3. Within the cap, polluters can trade carbon permits. All permits will be auctioned by the government.
  4. Here’s the “dividend” part of cap-and-dividend: all revenue from permit auctions will be put in a trust, divided up, and paid out evenly to every single American.

The proposal combines some of the better aspects of cap-and-trade and carbon taxes. For example, it places a hard cap on emissions and gets the government out of the business of picking prices. But by placing the cap upstream and auctioning all permits, it avoids some of the complexity and potential for gaming inherent to trading schemes.

Meanwhile, the dividend aspect of the plan strikes me as both good policy and good politics, which is a lovely and rare combination. Setting up such a trust would counter some of the regressive aspects of higher energy prices and also provide a highly visible benefit that individual taxpayers would likely become very protective of.

On the national level, that is. On a global level, the political prospect of establishing a universal fund that Americans pay into and transnational trustees then disburse to the world’s poor seems, well, a bit fanciful.

Of course, at this point there are already several good climate bills on offer from various presidential candidates and under consideration in the senate, so it’s not clear what kind of traction this idea will get. At the very least, it’s something carbon nerds can chew over.

Photo available under Creative Commons license from Flick user takomabibelot.

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  1. Matt Johansen - January 9, 2008

    Why not take it a step further? How about if every American has the choice to take their dividend in cash, or to “reinvest” it into an environmental trust fund that would direct those funds to several projects (R&D for clean energy, effeciency upgrades for low income families, climate change mitigation for 3rd world nations, etc). Of course, you would receive a tax deduction for choosing to reinvest your dividend. Let’s start making phone calls!

  2. Monty - January 9, 2008

    This strikes me as similar to what has been talked about for years (decades?) in energy. The concept was that we put a large tax on the energy being consumed (kWh, gasoline, etc), and the collections from that are divided evenly among tax payers or (some subset there-of). The problem is that many people do not trust whatever authority is collecting and re-distributing, not to mention not excited about being taxed so heavily in the first place.
    I think it is a fantastic idea, and I would love to see it implemented, but I am concerned that there will be way too many people shooting it down.

  3. Sam - January 14, 2008

    This is a great idea & it’s exciting to finally be talking about solutions beyond Joe Lieberman’s polluter giveaway…