OnTheCommons.org [Printer-friendly version] December 13, 2007 HOW TO FIGHT CLIMATE CHANGE WITHOUT SOAKING THE MIDDLE CLASS By Peter Barnes Fighting climate change is going to cost all of us money. That's because the price of dumping carbon into the atmosphere must, necessarily, rise. Whether the price rise is prompted by a tax or a cap makes no difference -- we will all pay more. This politically inconvenient truth has long been trumpeted by the coal industry. Environmentalists, for just as long, have glossed over it. But numbers are now coming in from reputable quarters, and they're big enough to send a message to policy makers: don't deny the problem, solve it. Last month, the director of the Congressional Budget Office, Peter Orszag, told Congress that the average American household would pay $1,160 a year in higher prices when carbon dioxide emissions are cut 15 percent. A new report by James Boyce and Matt Riddle of the University of Massachusetts, Amherst, says the CBO's numbers are low: the average family will pay $1,570 a year in higher prices when emissions are cut by just 7 percent. That, of course, is only the start. As emission cuts rise toward the ultimate goal of 80 percent, our disposable incomes will take a sizeable hit. Hardest hit will be low-income families -- higher prices for energy and energy-intensive goods will impose a larger burden, relative to income, on them than on the rich. But the middle class will also be soaked, and therein lies the political problem. Any solution to climate change has to work for forty years or more. A policy that soaks the middle class won't last longer than a few election cycles. The middle class must be protected. The question is how. A few ideas are floating about. One is to give tax rebates that offset higher energy prices. Al Gore, for example, proposed in his Nobel acceptance speech that payroll tax refunds be given to every U.S. worker who pays them. That's a good start, but it leaves out too many people who are poor and middle class. Nearly half of households in the bottom fifth would receive no payroll tax rebates because they have no taxable wages. Also excluded would be retirees, students, stay-at-home parents and workers outside the formal economy. The simplest and fairest way to protect the poor and middle class is to give equal rebates to everyone. The money would come from either a carbon tax, or an auction of carbon emission permits. Boyce and Riddle support a plan called Cap and Dividend. Just as every Alaska resident receives an equal dividend from revenue from state oil leases, so every American would get an equal dividend from carbon permit auctions. The dividends would be wired monthly into people's bank accounts, much like Social Security payments. They'd help families pay their monthly bills. There are several nice features of such a plan. One is that it's automatic -- as energy prices rise, so do dividends. Another is that how you fare depends on what you do. The more energy you use, the more you pay. Since everyone gets the same amount back, you gain if you conserve and lose if you guzzle. This is fair to everyone, whether rich or poor. And it takes politicians off the hook for rising energy prices. If voters complain, politicians can truthfully say, "The market sets prices, and you determine by your own energy use whether you gain or lose. If you conserve, you come out ahead." A further appeal of Cap and Dividend is that it's progressive in its economic impact. Even though higher energy prices hit the poor the hardest, the poor actually gain when dividends are added in. What's more, much of the middle class gains as well. Indeed, according to Boyce and Riddle, more than 60 percent of Americans would come out ahead. There's also an attractive premise behind Cap and Dividend: the atmosphere is a commons that belongs to everyone. Those who pollute the commons should pay to do so. And the income should go to the commons' owners, one person, one share. If I were a Presidential candidate, I'd latch on to Cap and Dividend in a flash. After all, what's not to like? With Cap and Dividend, we'd limit carbon emissions, spur private investment in clean energy, create jobs, and send money to everybody. Who wouldn't vote for that?