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Dividends are a method of returning revenues from a carbon price back to people.
The ideas and principles behind the dividend are described in Peter Barnes’ books Who Owns the Sky?, Capitalism 3.0 , and With Liberty and Dividends For All, and Professor James K. Boyce’s The Case for Carbon Dividends. Also see the resources on this page below.
Two approaches to carbon pricing with dividends are 1) Fee and Dividend and 2) Cap and Dividend.
Why Dividends for America?
The formation of this group was inspired by a report by Harvard Professor Theda Skocpol in January 2013 called Naming the Problem, where she discusses the challenges of passing national climate legislation. She looks to the health care issue as an example of a broad coalition that was successful in passing a health care law, and especially the group Health Care for America Now.
The analysis that led to the formation of Dividends for America is that dividends are a key component to broaden the coalition that would support a carbon price. This coalition will build upon previous organizing efforts around Cap & Dividend and Fee & Dividend, and reach out to new constituencies about the importance of dividends as part of a carbon pricing system.
On page 123 of the Naming the Problem report, Skocpol concludes: “For inside the Beltway types, the easy choice will be to try ever more insider efforts to get a cap and trade system or carbon taxes, with new revenues to be dispensed in relatively opaque ways through complicated stakeholder bargains. But for strategists who suspect that more of the same kind of politics will not work, cap and dividend approaches hold the possibility of constructing a new political movement in the next few years. A carefully organized drive for cap and dividend might well bring together environmental advocates, green businesses, and many unions and citizen associations to support the enactment of carbon-emissions caps and the subsequent ratcheting-up of the tax levels to ensure that the United States completes a transition to a green economy, with ordinary citizens reaping economic benefits along the way.”
About Fee & Dividend
See this description from the Citizen’s Climate Lobby website. https://citizensclimatelobby.org/carbon-fee-and-dividend/
About Cap and Dividend
The main difference with a fee, is that Cap & Dividend starts with a cap, or limit, on overall emissions. Permits are distributed under a cap (we advocate for selling, or auctioning, those permits). The limited supply of permits under cap makes them valuable. This is the carbon price that generates revenues that may be returned to households as dividends.
About Cap & Trade
Cap & Trade describes a form of carbon pricing market where emissions are capped and allowances under the cap are traded. Cap and trade systems may be designed in various ways, including how the cap is set (what companies are regulated), how allowances are allocated, and how the revenues from auctions are spent. Previous cap and trade proposals have often given away permits for free to companies, and included offsets, rather than dividends. A cap and trade system could include dividends, but in order to do so it would need to auction permits.
It is also important to note that a cap does not necessitate trading. You can have a cap without trading, and many environmental justice advocates have correctly noted problems with trading permits including “hot spots” in disadvantaged communities. Dividends for America is very aware that that “carbon pricing” and “market mechanisms” may take many forms, in some cases the design can be problematic.
Cap and Trade or Carbon Tax?
Another way to describe this choice is what economists would call Price or Quantity? A Cap is a quantity restriction on emissions where the price of allowances under the cap can fluctuate. You can also have a cap but no trading of permits. A Carbon Tax sets a given price and allows the quantity of emissions to fluctuate. One problem with having a tax but no cap is that emissions may continue and even rise, and the tax only reallocates funds (which still may have some positive benefits).
Although there is a debate between the merits of each system in theory, in practice they both can be done well or poorly. Different coalition members have different perspectives. Dividends for America supports approaches that would result in a carbon price that changes market behavior and emphasizes the dividend component.
Federal Carbon Pricing Bills in Congress
Crosswalk of Carbon Pricing Bills 2009-2021 (pdf)
Ten Principles for Successful Carbon Pricing (pdf)
The Healthy Climate and Family Security Act of 2019 sponsored by Senator Chris Van Hollen (D-MD) https://www.congress.gov/116/bills/s940/BILLS-116s940is.pdf It has been co-sponsored by Rep. Don Beyer (D-VA) and others. The 2018 version of the bill had 29 co-sponsors
February 2013: Sen. Barbara Boxer and Sen. Bernie Sanders proposed a plan that would impose an upstream fee on carbon emissions, with three-fifths of revenues refunded to residents as a Family Clean Energy Rebate. San Francisco Chronicle 2-13-13: Boxer’s push is a twist on carbon tax
Fee and Dividend Bills:
Citizen’s Climate Lobby supports the Energy Innovation and Carbon Dividend Act https://energyinnovationact.org/ It is supported by several Congresspeople including Rep. Ted Deutsch (D-Florida) and about 86 co-sponsors.
In 2015 Congressman Jerry McNerney (CA-09) introduced the Consumers REBATE (Rebate to ban Emissions and Boost AlTernative Energy) Act. https://mcnerney.house.gov/media-center/press-releases/rep-mcnerney-introduces-consumers-rebate-legislation-to-reduce-emissions
Cantwell-Collins CLEAR Act 2009-2010
- Senators Maria Cantwell and Susan Collins in Washington Post 6-18-10: A cap-and-dividend way to a cleaner nation and more jobs
- CLEAR Economics by Boyce and Riddle, UMass Amherst, March 2010 (pdf)
- James Boyce blog 7-12-10: Carbon Dividends: The Bipartisan Key to Climate Policy?
- Earth Day Network blog 2-5-10: Economist Endorses the CLEAR act over a Cap and Trade Bill
- Hill Heat 3-9-10: AARP Endorses Cantwell-Collins
- Earth Day Network blog 2-5-10: Economist Endorses the CLEAR act over a Cap and Trade Bill
- The Economist print edition 2-4-10: A refreshing dose of honesty: Maria Cantwell and the politics of global warming
- AARP letter to Sen. Cantwell in support of dividends
State and Regional carbon pricing initiatives
- California and AB32
- C2ES California Cap and Trade
- SF Chronicle 11-16-12: Cap and trade may be plum for homeowners describes “electricity bill credit”
- California’s Economic and Allocation Advisory Committee (EAAC) January 10th, 2010 report recommends that “the largest share (roughly 75%) of allowance value should be returned to California households” (pg. 69). The report states that “roughly 75% of this value should be returned to households either through lump-sum payments…” and “roughly 25% of this value should be devoted to financing investments and other public expenditure…” (pg. 68).
- Wall Street Journal: California Ties Cash to Energy 1-12-10
Here are a few approaches to carbon pricing that would result in few or no dividends.
- Revenues given to companies instead of households or individuals.
- Tax swaps such as a payroll tax swap.
- Corporate tax reductions.
- Spending revenues on projects that could be funded in other ways.
- Means-testing dividends, or having dividends that only go to low-income households.
Those approaches would leave less money going to individuals, and result in a smaller dividend.
For that reason, Dividends for America opposes a majority of funds being used in those ways.
Helpful News and Blog Articles
Click here for Dividends for America News and Blog
George Shultz and Gary Becker 4-8-13: Why We Support a “Revenue Neutral” Carbon Tax
Peter Barnes, “Who Shall Inherit the Sky?” Yes Magazine. Spring 1999.
Testimony by James Hansen: Carbon Tax & 100% Dividend vs. Tax & Trade
Academic articles and studies
Peter Barnes, Americans for Equitable Climate Solutions and Corporation for Enterprise Development, “Sky Trust Initiative: Economy-Wide Proposal to Reduce U.S. Carbon Emissions“
Harvard Professor Theda Skocpol’s paper “Naming the Problem” February 2013
James K.Boyce & Matthew Riddle., CLEAR Economics UMass Amherst, March 2010 (pdf)
Boyce, James K. & Matthew Riddle. Cap and Dividend: A State-By-State Analysis. Political Economy Research Institute University of Massachusetts, Amherst, August 2009.
Breslow, Marc and Peter Barnes, “Pie in the Sky,” paper presented to the Natural Assets Workshop in Santa Fe, New Mexico, January 21, 2000.
Burtraw, Dallas. Carbon Emission Trading Costs and Allowance Allocations: Evaluating the Options, Resources for the Future, Fall 2012
Bovenberg, Lans and Lawrence Goulder, Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does it Cost? Working Paper No. 7654 (Cambridge, Mass.: National Bureau of Economic Research, April 2000). http://www.nber.org/papers/w7654
Karen Palmer & Bharvirkar, Ranjit & Paul, Anthony. The Effect of Allowance Allocation on the Cost of Carbon Emission Trading, Resources for the Future, 2001.
Carbon Tax Center, James F. Handley, and Charles Komanoff. “Bloomberg, Economists, Greens Tell Ways & Means: Price Carbon Upstream, Distribute Revenues to Consumers” (a blog about a Congressional Hearing titled “Price Carbon Upstream, Distribute Revenues to Consumers”) September 21, 2008.