The Carbon Dividend Strategy: The Grand Bargain (Old Idea with a New Impetus?)

A plan that can reduce climate change and financially help millions of Americans at the same time? The OnLocation Inc. team has been researching a proposed carbon dividend strategy and how it can be used to push a clean agenda.

The Carbon Dividend Plan proposed by the Climate Leadership Council is a bipartisan market based climate strategy that relies on free market principles to accelerate the transition of the U.S. economy towards lower carbon emissions and domestic energy independence. This plan would implement a carbon tax that supporters say will help working-class Americans while shrinking climate-related government regulations. The plan is backed by several large multinational corporations including major oil producers ExxonMobil, BP and Royal Dutch Shell.

How will it work? The first step of the carbon dividend strategy is to implement a gradually increasing tax on carbon dioxide emissions. This tax will encourage energy consumers to purchase more energy efficient products and corporations to invest in technology innovation and new energy infrastructure that can reduce CO₂ emissions. The revenues generated from this tax will then be returned to the consumers (aka. The American people) through dividend checks distributed per capita. This is a positive outcome that aims at creating financial incentives for companies and individuals to reduce their carbon footprint.

The second step in this plan is the implementation of border adjustments for the carbon content of both imports and exports. Products from countries without a carbon policy would be taxed based on the carbon content of the imported product, whereas products from countries with a comparable carbon policy would not be taxed. These border adjustments would encourage other countries to adopt carbon policies of their own to avoid the import tax. Similarly, exports to countries without comparable carbon policies would receive rebates for carbon taxes paid. In both scenarios, the tax proceeds would benefit the American people in the form of larger dividends.

The third step is to roll back the Obama Administration’s climate-based regulations, including the Clean Power Plan, the Obama administration’s approach to the Paris Climate Agreement implementation.  The proposed carbon dividend strategy would be designed to meet or exceed the carbon reductions expected from these regulations while also providing financial benefits to Americans and spurring technology innovation by corporations.

Although there are many aspects of this plan that still need to be thought out in more detail, there are clear distinctions and similarities between the Carbon Dividend Plan and the Clean Power Plan. Both plans focus on increasing the use of low or zero carbon dioxide emitting power plants – whether it be renewable sources or natural gas. However, the Carbon Dividend goes beyond the power sector to reduce emissions from all energy sectors and returns the money directly to energy consumers. The plans also differ when it comes to their geographic focus. While the Clean Power Plan focuses on individual states meeting specific standards, the Carbon Dividend Strategy is a national plan that includes border adjustments for international exports and imports.

There are many questions that still need to be answered about the plan. Which federal body would be in-charge of collecting the tax revenue and sending carbon dividend checks to consumers? How will the border adjustment affect cities and companies that are dependent on international business? How will the tax affect the prices of products sold within the U.S., both domestic products and imports? How would the intended carbon reduction compare to the defunct Paris agreement? And last, but not least, what would be the impact on economy and employment, at national as well as local level?

We at OnLocation are excited that despite the withdrawal from the Paris agreement, there is still a lively debate in the US and believe that the Carbon Dividend Plan raises interesting questions and is worth looking into. We want to contribute to the discussion and hear from you: what do you think? What aspects of the plan are more challenging? Which ones are more promising? Let us know, and let us all participate in the discussion.

Links to further readings:

• The Four Pillars of Our Carbon Dividends Plan (Climate Leadership Council)
• ‘A Conservative Climate Solution’: Republican Group Calls for Carbon Tax (NY Times)
• Let the Carbon-Dividends Debate Begin (National Review)
• A climate solution where all sides can win (TED)