by Michael Howard | Feb 11, 2017 | Opinion
The Climate Leadership Council just put forth a proposal for a carbon fee and dividend, as a key policy to combat climate change. The authors are conservatives, including Republican former Secretaries of State James Baker and George Schultz, Treasury Secretary Henry Paulson, and two Chairs from the Council of Economic Advisors in the Reagan and George W. Bush administrations. While there are some aspects of the proposal to question, progressives should get behind the main idea: a steadily rising carbon fee and dividend.
First, the proposal is a very welcome development for the effort to fight climate change, and for the introduction of a partial basic income. At a time when the President and many Republicans in Congress make light of or outright deny the problem of anthropogenic climate change, it is encouraging to see such concerted effort by people with impeccable conservative credentials proposing a policy that is also favored by many progressive Democrats and environmentalists like Bill McKibben. The dividend would be a significant benefit especially to poor and working class families, and, if revenue-neutral, would more than compensate for the regressive income distribution effects of a carbon tax.
How effective this particular carbon tax and dividend proposal will work depends on details not spelled out in the proposal. The proponents propose starting at $40 per ton of CO2, and a lot depends on how quickly the tax rises. They claim that a commission will decide after five years whether to raise the tax, and if it is flat for five years, that would not be adequate. One analysis of the proposal assumes that if the tax rose by $5/year, it would reduce US carbon emissions 40 percent below 2005 levels by 2030. While not as much as we need, it would be a big step beyond the status quo, and could be strengthened as the political will rises to do so.
The authors propose a tradeoff between the carbon tax and regulation. The authors claim, “To build and sustain a bipartisan consensus for a regulatory rollback of this magnitude, the initial carbon tax rate should be set to exceed the emissions reductions of current regulations.”
If this is indeed the effect, the tradeoff might be worth it with respect to the EPA’s Clean Power Plan. According to Charles Komanoff of the Carbon Tax Center, “well over 80 percent of the plan’s targeted reduction in electricity-sector emissions for 2030 had already been achieved by the end of 2016,” so an economy-wide carbon tax is the logical next step. But worrisome is the Climate Leadership Council’s apparently wider scope of reduction of regulatory power of the government, which serves many other purposes unrelated to climate change. And unless the carbon tax is set high enough and is assured of rising regularly, to give away the EPA’s authority to regulate carbon emissions might be a fool’s bargain. The challenge for progressives and environmentalists is making sure that any tradeoff gives us a robust climate fee and dividend.
A deeper question is whether a carbon fee and dividend will stimulate growth. The model suggested here does not give us enough detail, but a similar proposal by Citizens’ Climate Lobby is projected to create millions of new jobs in clean energy, and not inhibit growth. However, as we steadily use up our carbon budget, the level and pace of reduction in greenhouse gases necessary to avert catastrophic climate change may not be compatible with sustained economic growth.
This leads me to question whether the challenge of climate change — more than two decades after the international community became aware of the problem and initiated treaties to address it — can now be addressed through a carbon tax alone. We may also need direct investment in research and development of alternative technologies. We need to make good on our promise in the Paris Agreement to aid poor countries in the transition to a non-carbon future, so that they do not face an intolerable dilemma between economic development and environmental safety. And we may need to manage a scaling down of our consumption in a manner that does not cause widespread misery.
But there should be little doubt that a carbon tax is a key pillar in the battle against climate change, and using the revenue for dividends is an equitable and politically prudent policy. For basic income supporters, it is the closest analogue on the national scale to Alaska’s Permanent Fund Dividend that we can hope for in the near term.
Reviewed by Kate McFarland
Photo: CC BY-NC-ND 2.0 macwagen
by Michael Howard | Sep 14, 2015 | Opinion
An emerging proposal for a carbon fee and dividend would yield a substantial dividend payment, eventually exceeding the amount of Alaska’s Permanent Fund Dividend, to American households. Citizens’ Climate Lobby (CCL) is proposing a revenue-neutral carbon fee. This would be collected from the companies operating hydrocarbon mines and wellheads, wherever carbon is first introduced into the economy, from which 100% of the revenue would be returned to the citizens as dividends. CCL’s proposal starts with a fee of $15 per metric ton of carbon, then would raise the fee by at least $10 per year (higher if faster carbon reduction is warranted) until environmental target reductions are met.
Using a carbon tax and dividend calculator at the Carbon Tax Center, I calculated what the individual and household annual dividends would be for selected years from 2016 (the hypothetical initial year) to 2039 (the last year available in the calculator). Households are assumed to contain an average of 2.6 people.
|
Individual |
Household |
Carbon Emissions, % below 2005 Levels |
| 2016 |
$264 |
$686 |
13 |
| 2017 |
433 |
1185 |
15.2 |
| 2025 |
1,613 |
4,194 |
30.7 |
| 2030 |
2,247 |
5,843 |
38 |
| 2039 |
$3,325 |
$8,646 |
48 |
Although not a full basic income by any means, a carbon dividend promises to be a significant addition to individual and household incomes, surpassing the average amount of the Permanent Fund Dividend in less than a decade. By 2039, it is estimated the proposed carbon fee would reduce CO2 emissions 48% from 2005 levels, substantially more than the reductions projected for the EPA’s Clean Power Plan.
That sounds impressive, but is it enough? Citing experts at the Tyndall Center for Climate Change Research in her compelling vision for remaking the economy to combat global warming, This Changes Everything, Naomi Klein claims that “our only hope” of keeping global warming below 2°C, “is for wealthy countries to cut their emissions by somewhere between 8-10 percent a year….This level of emissions reduction has happened only in the context of economic collapse or deep depressions” (21).
Kevin Anderson of the Tyndall Center maintains that there needs to be an 80% cut in emissions in the Annex 1 (wealthier) countries by 2030, if we are to meet the 2°C target, and also allow developing countries’ emissions to peak somewhat later. This, he argues further, requires a “de-growth strategy,” a planned period of reduced economic activity. He does not think that carbon pricing will suffice to reduce carbon emissions at the rate required, for the following reasons:
To summarise, if:
- reductions in emissions greater than 3-4% p.a. [per annum] are incompatible with a growing economy,
- the 2°C obligation relates to a twenty-first century carbon budget,
- a 50% chance of exceeding 2°C is adjudged an acceptable risk of failure,
- and Non-Annex 1 nations peak emissions by 2025 & subsequently reduce at ~7% p.a.,
- then the wealthier nations’ carbon budget is the global 2°C budget minus the poorer nations’ budget,
- and consequently wealthier nations must reduce emissions at 8 to 10% p.a.,
- Q.E.D. Annex 1 mitigation rates for 2°C are incompatible with economic growth
James Hansen et al., making somewhat different assumptions, also call for steep carbon emission reductions of around 6% per year.
More ambitious projections
Suppose that we need to reduce our emissions 80% by 2039. How much of a carbon fee would be needed, and how much would it yield in dividends? Starting at $20/ton, and beginning in 2016, with increments of $40/ton/year, these are the results from the Carbon Tax calculator:
|
Tax/ton |
Revenue, $ billions |
Carbon Emissions, % below 2005 Levels |
Individual Dividend (100% return) |
Household Dividend (average of 2.6 people) |
| 2016 |
$20 |
$110 |
14.7 |
$345 |
$896 |
| 2018 |
100 |
451 |
32.4 |
1,394 |
3,624 |
| 2020 |
180 |
708 |
43.2 |
2,153 |
5,599 |
| 2025 |
380 |
1,130 |
60.7 |
3,309 |
8,603 |
| 2030 |
580 |
1,419 |
70.4 |
4,010 |
10,427 |
| 2035 |
780 |
1,635 |
76.8 |
4,476 |
11,637 |
| 2039 |
$940 |
$1,785 |
80.4 |
$4,802 |
$12,485 |
Note that emissions in the US rose around 17% from 1990 to 2005, so to get emissions down to 80% below 1990 levels, the annual increase would need to be at least $45. This would, by 2039, produce emissions 82.7% below 2005 levels, with a fee of $1,055 per ton, yielding revenue of $1,770 billion and an individual dividend of $4,761 ($12,380 for a household). Presumably the lower revenue and dividends compared to the scenario with a $40 increment is the consequence of declining fossil fuel use and a lower tax base. (To reach 82.4% reductions from 2005 by 2030, Anderson’s target date, the fee increment would need to be $70/year. The maximum individual dividend in 2039 would be $4,268).
The carbon fee would constitute a steadily rising percentage of gross domestic product (GDP) in terms of revenue. If GDP were held constant at $19 trillion, the fee would rise from 0.5% of GDP in 2016 to over 9% in 2039. Even if, as is more likely, GDP rises, the fee will still rise at a faster rate than GDP. Estimates for the 2030 US GDP range from $25.5 to $38.2 trillion. The percent of GDP of the carbon fee in 2030 would thus fall between 5.6 and 1.4, respectively.
At first glance, this suggests that the carbon fee would bring a halt to growth, as it would equal or exceed the normal growth rate of the economy (around 2%). However, accounting for the fact that the revenue is being returned as dividends, the effect may be to steer growth in another direction, away from carbon energy, which will quickly become unaffordable.
Of course, all this depends on the soundness of the projections for emissions reductions at various levels of carbon fee. We have no experience with carbon fees accelerating so rapidly. One case study suggests that carbon taxes may not be as effective as one would hope: the Norwegian carbon tax, one of the highest in Europe, resulted in relatively modest reductions of carbon emissions compared to business as usual, and over the 1990s, carbon emissions rose 15%. One problem was exempting industries on account of competitiveness, and another more telling issue was the inelasticity of demand for some forms of carbon use, such as transportation. The record of British Columbia’s revenue-neutral carbon tax is more encouraging, but since it topped out at $30 per ton in 2012, it is hard to extrapolate from that case to the more ambitious targets discussed here.
In the model discussed above, there are no exemptions. But with the more ambitious fee, it may not be possible for demand to shift rapidly enough from carbon fuel to renewables, and the effect of the fee could be mainly to depress demand, and with it economic activity, as has happened in the past when energy prices rise. Then it would appear that rapid carbon emissions reductions would not be compatible with economic growth.
For basic income researchers, I will conclude by noting the tension between analyses such as this, which envision basic income as part of equitable environmental policy and at least a transition period of de-growth, and those analyses that see basic income as an economic stimulus for growth.
by Michael Howard | May 30, 2011 | Opinion
It might be an exaggeration to say that former Alaksa Governor Jay Hammond, the person responsible more than any other for the Permanent Fund Dividend, was a republican thinker in the tradition of Rousseau or Jefferson. I certainly don’t know enough about his history to make this claim. But his reflections on the Alaska Permanent Fund (APF) and the Permanent Fund Dividend (PFD) do echo some important themes from that nearly abandoned republican tradition, and may partly explain why Hammond was often at odds with others in the Republican Party over the dividend, taxes, and economic development. The success of the Fund and Dividend may suggest a model for leaders in any party who want to promote republican ideals of citizen participation, equality, personal independence, and government that serves the common good rather than special interests.
At a workshop in which I participated in Anchorage on the PFD in April 2011, the Alaskans who had for decades studied the Fund and Dividend, and participated in their creation, all agreed that distributive justice played no part in the debate, and thought that had the Dividend been framed as a way to reduce inequality or end poverty, it never would have passed. The primary case for the Dividend was that it would create popular support for the Fund, and thus prevent the legislature from wasting money. Nevertheless, it is clear that distributive justice informed Hammond’s thinking about the Dividend, and partly explains why he favored dividends over competing policy proposals.
This is most obvious in the proposal, which passed despite Hammond’s opposition, to abolish the income tax and fund Alaska’s government with oil revenue. Hammond would have preferred the continuation of income taxes while paying larger dividends from larger investments of oil revenue in the Fund. One reason is that by repealing the income tax, “you’ll cut the one string connecting the citizen’s pocketbook to the government purse, and see state spending soar….[By [e]liminating the income tax…[n]ot only will we reduce our means, we’ll cut the one prime restraint on government spending” (265). Paying taxes makes us vigilant about what is being done with our tax dollars. It helps to keep us engaged as citizens. If we stop paying attention, we also get robbed.
This is clear in the second reason Hammond gave for continuing income taxes, that has to do with distributive justice: Eliminating, capping, or reducing the possible dividends paid out to citizens, in order to abolish income taxes, has a regressive effect on income distribution. “The most regrettable aspect of income tax repeal is that it exerts pressure to invade the Permanent Fund to replace the money lost by income tax repeal [pressure that will grow as oil revenue declines—MH]. This, of course, will shift the burden for state spending entirely from those who can best afford to pay taxes—including the non-residents who make up about a quarter of our workforce—to the shoulders of each and every Alaskan, regardless of income. None would feel the burden more than the low and middle income groups” (266). In contrast, funding government from income taxes and permitting a higher dividend would give a bigger proportionate boost to the incomes of low and middle income groups.
Hammond points out that the abolition of income taxes in effect created hidden taxes. Proposals to cap dividends in order to allow more APF money to be used for government spending “equates with imposing a head tax on every Alaskan and only Alaskans—regardless of income…. it never makes more sense to cap dividends than to simply ratchet up taxes to raise the same amount. In effect, capping dividends taxes only—and all—Alaskans. Increasing most taxes spreads the burden to those best able to pay—and also includes transient workers who currently remove so much wealth from our state ” (320–22).
The dividend, according to Hammond’s estimate, “is but one half of the earnings derived from investments of roughly only one-tenth of their oil wealth.” If all the wealth were distributed in dividends, each Alaskan would receive an additional $6,000 per person per year (in 1993). By funding government with this oil revenue instead of from taxes, Alaskans are in effect paying a regressive head tax, falling heaviest on those who can least afford to relinquish this wealth. But because it is not taken out of their paychecks, the tax remains hidden. A large dividend would contribute to personal independence. Hammond speculates that “were every Alaskan annually granted his full per capita share of the wealth we could eliminate or vastly curtail all welfare programs, unemployment insurance and subsidies” (319).
The supporters of income tax abolition, he notes, are first of all the wealthy who stand to benefit from lower taxes more than they would gain from larger equal per capita dividends. Secondly, a legislature flush with money that no one is watching becomes a tool of special interests. Hammond says to proponents of income tax repeal,” “though you seem perfectly willing to cut down on the little guy’s ‘living’ by slicing social programs like welfare, you seem unconcerned about boosting ‘living’ for select interests through subsidies such as lower than market rate loans and other ‘hidden dividends’ not based on need. Some might call that ‘corporate welfare’” (265).
Thus we find another classic republican theme, promotion of the general good over particular interests, alongside Hammond’s concerns for personal independence, progressive taxation, and more engaged citizens. All of these ends are well served by a large dividend and funding of government through income taxes.
There are some blind spots in his thinking. While he recognizes the legitimacy of government spending on the basis of need or “constitutional obligation”, he seems not very sensitive to the case to be made for government spending for public goods. There are some goods we all benefit from that the market will not deliver efficiently, no matter how much income we have. And his outlook is narrowly nationalistic, aiming for what is good for all Alaskans (not even all Americans), as is evident in the above quotations referring to non-Alaskans. (In his original dividend proposal, found unconstitutional by the Supreme Court, Hammond wanted those who had lived in Alaska longer to receive larger dividends.) Why, one might ask, should Alaskans enjoy a large dividend because of Alaska’s oil, while Vermonters, say, with fewer resources, could only give themselves a much smaller dividend? Shouldn’t the unearned natural wealth of the United States be shared equally by all Americans? Or, to go a step further, shouldn’t the natural resources of the earth be shared equally by all of its inhabitants, not just those fortunate to be born on top of rich deposits of oil or other wealth? This of course is not a blind spot peculiar to Hammond or political thinkers in the republican tradition, and getting beyond it in practical politics will require the strengthening of institutions and an ethos of solidarity at the federal and global levels. As these emerge, the global community may have something to learn from the example of the Permanent Fund Dividend, including the thinking of its strongest advocate.
All references are to Jay Hammond, Tales of a Bush Rat Governor (Fairbanks/Seattle: Epicenter Press, 1994).
