OnTheCommons.org  [Printer-friendly version]
December 13, 2007


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

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

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?