The Right Policy: Carbon Fee and Dividend

2. Are you concerned about climate change, but unsure which government policy could best address it? Do you worry that the measures our government has taken to stop climate change are too feeble?

3. The Right Policy:Carbon Fee and Dividend

4. Motivation • What risks do we face from climate change? • Description • What is the Carbon Fee and Dividend plan? • Context • What are the other policy alternatives? • Pros and Cons • How does Fee and Dividend compare to other policies? • Conclusion

5. In December of 2013, Jim Hansen and a long list of co-authors* published “Assessing ‘Dangerous Climate Change: Required Reduction of Carbon Emissions to Protect Young People, Future Generations and Nature” This paper is an urgent warning that even the UN’s cumulative carbon emissions limit designed to be consistent with 2°C of warming is itself very dangerous. *List of authors: James Hansen, PushkerKharecha, Makiko Sato, Valerie Masson-Delmotte, Frank Ackerman, David J. Beerling, Paul J. Hearty, OveHoegh-Guldberg, Shi-Ling Hsu, Camille Parmesan, Johan Rockstrom, Eelco J. Rohling, Jeffrey Sachs, Pete Smith, Konrad Steffen, LiseVan Susteren, Karina von Schuckmann, James C. Zachos

6. From the abstract of “Assessing Dangerous Climate Change” “Cumulative emissions of 1000 GtC, sometimes associated with 2°C global warming, would spur ‘slow’ feedbacks and eventual warming of 3–4°C with disastrous consequences. Rapid emissions reduction is required to restore Earth’s energy balance and avoid ocean heat uptake that would practically guarantee irreversible effects. Continuation of high fossil fuel emissions, given current knowledge of the consequences, would be an act of extraordinary witting intergenerational injustice.” Note: From this paper, cumulative atmospheric carbon emissions are currently 370 GtC and are increasing a at a rate 10GtC per year. Hansen recommends a “safe” cumulative limit of 500 GtC.

7. If some of the top scientists in the field are warning that the next decade is our last chance to avoid dangerous climate change and all the world’s leading scientific organizations agree that climate change is real and dangerous, why do seemingly rational conservatives in the U.S. oppose legislation to address it? Fundamentally, U.S. conservatives fear the economic consequences of government action to address climate change.

8. Progressive Perspective on Climate Change Risk If we ignore Climate Change If we continue to increase carbon emissions Political Environmental Risk Perspective EnvironmentalCollapse: Devastating Droughts, Left Floods, & Storms; Famine; Sea Level Rise; Ocean Acidification; Mass Species Extinction Right What? Me worry? Deny Environmental Risk Continue Business as Usual Let Markets Decide Drill, Baby Drill

9. Progressive Perspective on Climate Change Risk Those greedy capitalists are willing to sacrifice their own children!

10. Conservative Perspective on Climate Change Risk If we address Climate Change If we drastically reduce carbon emissions Political Economic Risk Perspective Economic Collapse: Extremely Expensive, Unreliable & Insufficient Right Power Generation; Uncompetitive Economy; Blackouts; Growing Poverty; Insolvent Government Repressive Government Left What? Me worry? Deny Economic Risk Continue Politics as Usual Let Governments Decide Emotion over Logic

11. Conservative Perspective on Climate Change Risk Magical thinking by hopelessly ignorant political activists could kill our free-market economy!

12. Opposing Perspectives on Climate Change Risks Ignore Climate Change: Address Climate Change: Continued Increase of Drastic Reduction of Carbon Emissions Carbon Emissions Political Environmental RiskEconomic Risk Perspective EnvironmentalCollapse: Devastating Droughts, Left Floods, & Storms; What? Me worry? Famine; Sea Level Rise; Ocean Acidification; Mass Species Extinction Economic Collapse: Extremely Expensive, Unreliable & Insufficient Right What? Me worry? Power Generation; Uncompetitive Economy; Blackouts; Growing Poverty; Insolvent Government; Repressive Government

13. My Perspective on Climate Change Risks Ignore Climate Change: Address Climate Change: Continued Increase of Drastic Reduction of Carbon Emissions Carbon Emissions My Environmental RiskEconomic Risk Perspective EnvironmentalCollapse: Climate Change Devastating Droughts, is very real & Floods, & Storms; very dangerous. Famine; Sea Level Rise; Ocean Acidification; Mass Species Extinction Economic Collapse: Our global industrialExtremely Expensive, economy rests on a Unreliable & Insufficient fossil fuel foundation. Power Generation; Energy transitions are Uncompetitive Economy; enormously complex Blackouts; Growing Poverty; & take decades. Insolvent Government Repressive Government

14. The changes to our economy that are needed to replace fossil fuels and address climate change are immense. Concerns about the cost of government involvement on this scale are reasonable.

15. “There is one thing all energy transitions have in common: they are prolonged affairs that take decades to accomplish … And the greater the scale of the prevailing uses and conversions, the longer the substitutions will take.” “a world without fossil fuel combustion is highly desirable … getting there will demand not only high cost but considerable patience: coming energy transitions will unfold across decades not years.” -Vaclav Smil, prolific author on energy issues, Distinguished Professor at the Univ of Manitoba From the book Power Hungry by Robert Bryce Refer to World Energy Outlook p. 4 graph “Growth in primary energy demand”

16. Earth’s Changing Climate as GHGs accumulate in its atmosphere The Fossil Fuel Foundation of the global economy We are in a precarious position - trapped between the irresistible force of climate change and the immovable object of our global economy. We can afford neither business as usual nor politics as usual.

17. Business as usual could destroy our environment. Politics as usual could destroy our economy. To successfully navigate between these two risks, it is critically important that we adopt the most economically efficient method to address rising carbon emissions.

18. The Carbon Fee and Dividend plan advocated by Citizen’s Climate Lobby (CCL)* • directly and powerfully addresses rising carbon emissions and • is as economically efficient as any other policy proposal. • * The Carbon Fee and Dividend plan has many supporters. The Hansen, et. al. paper from Dec 2013 states that “A rising carbon fee is the sine qua non for fossil fuel phase out”

19. What is “Fee and Dividend”? The Carbon Fee and Dividend plan is a form of revenue neutral carbon tax. Carbon taxes are widely acknowledged among economists (on the left and the right) as being the most economically efficient method to address rising carbon emissions.

20. A Carbon Tax America Could Live With, NYT, Aug 31, Harvard’s Greg Mankiw, economic advisor to President George W. Bush and Mitt Romney Among economists, the issue is largely a no-brainer…of 41 prominent economists about this statement: “A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as ‘corporate average fuel economy’ requirements for automobiles.” Ninety percent of the panelists agreed.

21. A Republican Case for Climate ActionBy WILLIAM D. RUCKELSHAUS, LEE M. THOMAS, WILLIAM K. REILLY and CHRISTINE TODD WHITMAN, New York Times, August 1, 2013 • “the United States must move now on substantive steps to curb climate change, at home and internationally.” • “The costs of inaction are undeniable. The lines of scientific evidence grow only stronger and more numerous. And the window of time remaining to act is growing smaller: delay could mean that warming becomes locked in.” • “A market-based approach, like a carbon tax, would be the best path to reducing greenhouse-gas emissions…” The writers are former administrators of the EPA during Republican administrations: Ruckelshaus, 1970 - 1973, and 1983 to 1985; Thomas, 1985 - 1989; Reilly, 1989 - 1993; and Whitman, 2001 - 2003.

22. In 2012, former Rep. Bob Inglis (R-SC4 1993-1999; 2005-2011) established E&EI, the Energy and Enterprise Institute. From their website … “Under Inglis’ leadership, E&EI advocates conservative alternatives to big-government mandates and fickle tax incentives. E&EI maintains that the accountability of a  “true cost” comparison between competing fuels will drive innovation and economic growth.  As an optimistic conservative, Inglis launched E&EI to apply a “can-do” American spirit to the challenges at hand." “Economists have long understood that the key to smart environmental policy is aligning private incentives with true social costs and benefits.  That means putting a price on carbon emissions, so households and firms will have good reason to reduce their use of fossil fuels and to develop alternative energy sources.” http://energyandenterprise.com/

23. Carbon Fee and Dividend Plan Revenue Neutral Carbon Fee - Charge For Polluting, Give All the Money Back • Steadily rising fee on carbon pollution at source • For example $10/ton each year for 10 years (adds $100/ton or $1 extra for gas at the pump) • Border Tax Adjustments (Import fee/export subsidy, based on carbon content and presence/absence of carbon pricing policies of respective trading partner) • Make it expensive to pollute so everyone-everyday will work to reduce emissions • Return All Funds to Families • 65% made better off

24. The Fee and Dividend Plan Simple Carbon Fee and Dividend proposal is simple, far simpler than the 1,400-plus pages of the Waxman-Markey cap and trade bill that passed the House in 2009 but will died in the Senate. Market-based It makes use of market principles, by prodding the market to tell the truth about the costs of carbon-based energy through prices. Minimizes Bureaucracy It would not impose mandates on consumers or businesses, create new government agencies, or add a penny to Uncle Sam’s coffers.

25. The Fee and Dividend Plan Protects U.S. Trade Gives incentives to other nations to impose their own carbon price A gradually rising fee would be imposed on carbon-based energy sources at the points where they enter the economy – at mine mouths or ports of entry, for example. Trade with countries that have not yet put an equivalent price on carbon would be covered by Fee and Dividend. Fees would be levied on the carbon content of all imports from these nations. Also, some revenue from fees would be used to subsidize carbon-intensive exports (like agriculture) to these non-carbon price countries.

26. The Fee and Dividend Plan It’s fair – not regressive on incomes Carbon-based energy imposes costs – on the environment, public health, and national security - and those costs would be made more obvious in the marketplace through the fees. Energy prices would go upBUT revenues collected from carbon fees would be returned 100% to the public through dividends. A $100-per-ton carbon fee would add a dollar to the per-gallon price of gasoline but would raise enough revenues to pay every adult American as much as $3,000 per year.

27. The Fee and Dividend Plan How would it affect individuals? The impact on individuals would depend on how they exercise their right to make free choices. Those who wish to use carbon-based energy with abandon would be free to do so – knowing up front that they would pay the environmental and other costs of using lots of carbon-based energy rather than shift those costs onto their fellow citizens. Those who acknowledge the market signal and change their purchasing decisions could avoid some or most of the higher prices. Depending on the choices they make and the size of their dividends, many would come out ahead financially.

28. The Fee and Dividend Plan Carbon Pricing: Money Talks to the Entire Economy Businesses would seek out more opportunities to improve their energy efficiency. Other businesses would sell products and services that enable them to do so. Low-carbon energy sources would be more competitive with high-carbon sources.

29. The Fee and Dividend Plan Easy to Explain to Everyone The idea behind the bill could be described in a 1-minute elevator speech. As legislation, Fee and Dividend could fit onto a few pages. The bill could be read and understood by anyone – voters and lawmakers alike willing to put in a few minutes of time.

30. The Fee and Dividend Plan A Realistic Goal: Bipartisan Support • Transparent. • Market-based. • Does not enlarge government. • Leaves energy decisions to individual choices. • Takes a better-safe-than-sorry approach to throttling back oil dependence and keeping heat-trapping gases out of the atmosphere. • Fee and dividend is a conservative climate plan.

31. Climate Change Policy Alternatives From “The Case for a Carbon Tax” by Shi-Ling Hsu • Command and Control Regulation • Government Subsidies • Cap and Trade • Carbon Tax

32. Climate Change Policy Alternatives The Case for Government Subsidies Carbon dioxide emissions are market externalities. Subsidies for renewable energy technologies are one way to internalize the externality, a way of lowering the price to consumers of renewable energy. Carbon taxes internalize the externality by adding to the price of fossil fuels. Subsidies are politically popular. Carbon taxes are not.

33. Climate Change Policy Alternatives What’s wrong with “The Case for Government Subsidies”? • Higher energy prices are needed to spur energy conservation. • Subsidies are expensive. Cost puts a limit on how low renewable prices can be driven. • The rebound effect. Lowering the price of renewables lowers the demand and hence the price of fossil fuels. • Governments are bad at picking winners and losers are good at picking governments. • Bottom line: subsidies are expensive and often ineffective.

34. Climate Change Policy Alternatives Command and Control Regulation Early environmental regulation was mostly Command and Control. For example, the first attempts in the 1970’s by the EPA to use the Clean Air Act to address acid rain was to require the installation of sulfur dioxide scrubbing technology in all new coal-burning power plants. The industry response was to use old power plants more and avoid building new power plants.

35. Climate Change Policy Alternatives Command and Control Regulation • In general Command and Control regulation is inefficient (expensive for benefit derived) because it • requires much administrative oversight • is prone to regulatory capture • does not balance costs and benefits as compliance costs are difficult for agencies to estimate • fails to offer emitters incentives to find innovative ways to reduce emissions • invites gaming and litigation.

36. Climate Change Policy Alternatives Cap and Trade A carbon tax puts a price on carbon emissions and does not directly limit the amount of emissions. Cap and Trade puts a price on carbon emissions as well but it limits the quantity instead of the price. The Cap Cap and trade limits the amount of emissions. Permits to emit carbon are distributed. The Trading Cap and trade specifies activities (such as fossil fuel based power generation) that require permits. These permits can be traded, allowing the cap to be achieved more efficiently.

37. Climate Change Policy Alternatives Cap and Trade Cap and Trade for U.S. SO2emissions was implemented under the first George Bush and has been successful in reducing acid rain. Three notable GHG cap and trade schemes are the EU Emission Trading System (EUETS) the northeastern US states Regional Greenhouse Gas Initiative (RGGI) and Waxman-Markey bill passed in U.S. House in 2009, died in the Senate (notable failure)

38. Climate Change Policy Alternatives Cap and Trade Cap and trade does establish a price on carbon emission. It incents power producers to innovate and lower emissions. Theoretically, it could be almost as efficient as a carbon tax. Politically, it has been easier to implement. In practice, there have been substantial drawbacks.

39. Climate Change Policy Alternatives Drawbacks of Cap and Trade • Drawbacks of current Cap and Trade systems. • The volatility of the permit prices undermines incentives, especially for investment. [EU permit prices fell from €30/ton in 2008 below €3 in 2013.] Price volatility encourages financial solutions like options rather than innovations in lower carbon energy production. • The scope is too narrow. The RGGI includes only power producers. EUETS has been broadening its scope but still covers less than 50% of carbon emissions. Still price signals do not transmit throughout the economy. • Permits are often given away as political favors rather than auctioned. From The Case for Carbon Tax, “The free allocation of allowances under Waxman-Markey reads like a Christmas list.”

40. Climate Change Policy Alternatives RPS: Similar to Cap and Trade Similar Policy: Renewable Portfolio Standards (RPS) have been implemented across the U.S. and vary across states. They are market-based, requiring electric companies to produce a specific percentage of renewable energy. Renewable Energy Credits (RECs) are issued for production of renewable energy. An active market exists for trading RECs. RPS suffers from some the same issues as Cap and Trade and has an even narrower scope.

41. Climate Change Policy Alternatives Carbon Taxes "As a businessman it is hard to speak favorably about any new tax, … But a carbon tax strikes me as a more direct, a more transparent and a more effective approach. ... A carbon tax is also the most efficient means of reflecting the cost of carbon in all economic decisions - from investments made by companies to fuel their requirements to the product choices made by consumers," -Rex Tillerson, CEO of Exxon.

42. Summary Carbon Tax efficiency + Fairness = Fee and Dividend Fee and Dividend is a revenue-neutral carbon tax because all the proceeds are returned to the general public to offset their increasing energy costs. A carbon tax is almost certainly the cheapest way to reduce carbon dioxide emissions. As the war against climate change will be long, hard and expensive, we must spend our resources as carefully as possible.

43. Fee and Dividend: The Best Solution Fee and Dividend is the right policy to fight climate change. The political challenge is substantial. Let’s fight the good fight!

44. Good Books The Infinite Resource: The Power of Ideas on a Finite Planet by RamezNaam Storms of my Grandchildrenby Jim Hansen The Case for a Carbon Tax by Shi-Ling Hsu Power Hungry by Robert Bryce