Carbon Tax and 100% Dividend – No Alligator Shoes!

This by Jim Hansen from NASA

The “Carbon Tax and 100% Dividend” chart warrants discussion. Tax and dividend is the policy complement that must accompany recognition of fossil carbon reservoir sizes for strategic solution of global warming (the physics: reservoir sizes imply the need to phase-out coal emissions promptly and quash unconventional fossil fuels).

Tax and 100% dividend can drive innovation and economic growth with a snowballing effect. Carbon emissions will plummet far faster than in top-down or Manhattan projects. A clean environment that supports all life on the planet can be restored.

“Carbon tax and 100% dividend” is spurred by the recent “carbon cap” discussion of Peter Barnes and others. Principles must be crystal clear and adhered to rigorously. A tax on coal, oil and gas is simple. It can be collected at the first point of sale within the country or at the last (e.g., at the gas pump), but it can be collected easily and reliably. You cannot hide coal in your purse; it travels in railroad cars that are easy to spot. “Cap”, in addition, is a euphemism that may do as much harm as good. The public is not stupid.

The entire carbon tax should be returned to the public, with a monthly deposit to their bank accounts, an equal share to each person (if no bank account provided, an annual check – social security number must be provided). No bureaucracy is needed to figure this out. If the initial carbon tax averages $1200 per person per year, $100 is deposited in each account each month (Detail: perhaps limit to four shares per family, with child shares being half-size, i.e., no marriage penalty but do not encourage population growth).

A carbon tax will raise energy prices, but lower and middle income people, especially, will find ways to reduce carbon emissions so as to come out ahead. Product demand will spur economic activity and innovation. The rate of infrastructure replacement, thus economic activity, can be modulated by how fast the carbon tax rate increases. Effects will permeate society. Food requiring lots of carbon emissions to produce and transport will become more expensive and vice versa – it is likely, e.g., that the UK will stop importing and exporting 15,000 tons of waffles each year. There will be a growing price incentive for life style changes needed for sustainable living.

The present political approach is to set carbon emission reduction goals for 2025 or 2050. The politicians do not expect the goals to be reached, and they define escape hatches that guarantee they will not. They expect to be retired or become lobbyists before the day of reckoning. The goals are mainly for bragging rights: “mine is bigger than yours!” The worst thing about the present inadequate political approach is that it will generate public backlash. Taxes will increase, with no apparent benefit. The reaction would likely delay effective emission reductions, so as to practically guarantee that climate would pass tipping points with devastating consequences for nature and humanity.

Carbon tax and 100% dividend, on the contrary, will be a breath of fresh air, a boon and boom for the economy. The tax is progressive, the poorest benefitting most, with profligate energy users forced to pay for their excesses. Incidentally, it will yield strong incentive for aliens to become legal; otherwise they receive no dividend while paying the same carbon tax rate as everyone.

Special interests and their lobbyists in alligator shoes will fight carbon tax and 100% dividend tooth and nail. They want to determine who gets your tax money in the usual Washington way, Congress allocating money program-by-program, substituting their judgment for that of the market place. The lobbyists can afford the shoes. Helping Washington figure out how to spend your money is a very lucrative business.

But we can save the planet and alligators by making sure that not one thin dime of the carbon tax is siphoned off by lobbyists for their clients – 100% must be returned to citizens as dividend. Make this your motto: “100% or fight! No alligator shoes!”

Check the position of your congresspersons. If they spout things like “global warming is the greatest hoax in the history of the universe”, check the shoes of the people who visit them or have dinner with them. Changes in Congress are needed if we want our children and grandchildren to win this one.

Because of great benefits to the nation, humanity and nature, this approach soon would be adopted by other nations, providing an obvious path toward international agreements. Jim Hansen

Carbon Tax and 100% Dividend

1. Tax Large & Growing (but get it in place!)
- tap efficiency potential & life style choices
2. Entire Tax Returned
- equal monthly deposits in bank accounts
3. Limited Government Role
- keep hands off money!
- eliminate fossil subsidies
- support technology development (no Manhattan projects!)
- change profit rules and motivation for utilities
- watch U.S. modernize & emissions fall!


Source: http://www.columbia.edu/~jeh1/mailings/20080604_TaxAndDividend.pdf

Generally agree with him - although tax and active revenue recycling is more my flavour (all tax goes into research funds for low-emission technologies).

These two statements seem to contradict though:
- but lower and middle income people, especially, will find ways to reduce carbon emissions so as to come out ahead.
- The tax is progressive, the poorest benefitting most,

I think a tax like that tends to hurt the poorest as so much of their income is directly tied to necessary spending.

I have already stated i am against cap-and-trade systems and in complete support of a carbon tax. The only real debate is how the revenues are spent. Essentially I don't see this coming down to an either-or debate however. It is possible to fund some low-emission technologies and shuffle around some tax brackets, for those who are being hit hardest by the increase in prices from regulated companies.



This is referring to the notion, that they get to keep more of the rebate (allocated monthly) if they find alternative ways to spend it, other than back towards the companies who are being taxed.



I'm not sure what he means here either? The tax should be a fixed price. I guess it depends by what he means when he says "progressive". I am reminded by the fact that Jim Hansen is not an economist and I think he may have used the term in a non economist context?



I would say out of the two different methods we could allocate revenue from a carbon tax, the "Carbon Tax and 100% Dividend" would help the poor far better than the "Carbon Tax and Revenue Recycling" method, which allocates funds towards alternative technology development (that has a lag before the benefits are felt by society) and which the poor will still need to pay for the increase in energy prices without any assistance.

Just thinking about this part here:



This method implies the aggregate revenue from the tax is not divided up by each individuals spending, but rather by aggregate demand for these regulated companies goods and services.

So thinking about this more critically, people who already use alternative energy (a minority in reality) still receive a portion of the dividend regardless.

The idea is that people will try to spend their money differently by making life style changes and cutting down on say energy use from regulated companies so they get to keep more of the dividend. But collectively if everyone starts to do this, the aggregate revenue from the tax and thus the dividend portion will decrease also.

One questions whether this gives adequate incentive to stop using regulated companies goods and services and make life style changes?

Worth thinking about....

Similar thought crossed my mind - by smoothing the payback you are in some ways removing the direct incentive piece. That's why I prefer revenue recycling - you are boxing in the upsides and downsides into a specific market unto itself

Finally someone thinking outside the square. Some good ideas in there I think.

I am utterly convinced the scheme we're entering into is among the most cooked up scam of the corporate world. It simply saves the worst polluting/performing industries and makes their wares more expensive... I fail to see how that will encourage them to change unless the penalties for failure/non-action start becoming punitive or criminal.

R

I think so too actually. Some interesting points to think about in there, including how to use this system to limit the illegal alien problem in America.

I am thinking along the lines of some kind of hybrid of the "Carbon Tax and 100% Dividend" and the "Carbon Tax and Revenue Recycling" method.

I think a portion of the revenue from the tax could go towards a dividend and the rest could go towards alternative technology grants and subsidiaries for cleaner practices et al.

Which is really just a derivative of a "pigouvian tax" which is flexible in how its managed.



To date, business action on climate change has primarily focused on managing the risks associated with emerging regulations. And the emissions tax has met some intense resistance from lobbyists, political opposition and corporate bodies, who have threatened all sorts of action, including outsourcing operations to other countries with less regulatory barriers.

Facing a terribly complicated intersection of science, politics and economics, Governments have been forced to try and make it profitable for companies to participate and have seemingly been forced into arranging these cap-and-trade type schemes, which in some parts of the world have even given out the carbon credits for free in the first commitment phase.

But they are problematic with both companies and environmental groups using an economic military tactic called "preemptive buying", where credits are purchased from the market to attempt to deprive the competition from market expansion. Not to mention with global warming causing strange anomalies in weather conditions, means some seasons are going to need more energy for air conditioning if hot and heating if cold. Meaning new power plants will need to be fired up and more credits will be required to allow for their operation.

But if they are scarce which is what will happen in a constantly squeezing emissions trading market, they will be expensive and companies will hike their prices to offset their costs, which will cause economic mayhem, especially for the poor and working class.

I believe cap-and-trade systems are going to cause a lot of blow back as the emissions market is squeezed over each regulative cycle.

Interestingly most of the worlds prominent economists support a carbon tax. For instance, check out this list here in the Pigou Club.

http://en.wikipedia.org/wiki/Pigou_Club

Jim Hansen needs to take a writing course

I can’t see how this would work??

Poor person.
Pays $50 a month more in prices to account for the tax on carbon emissions, receives $100 per month in dividend. = Actually better off overall, no incentive to reduce, will probably end up spending more now that they can afford it.

Average person.
Pays $100 more in prices and gets $100 dividend. No incentive to change here

Rich person.
Pays $1000 more in prices and gets $100 dividend. No change here either. Rich people couldn’t give a toss about $900.

I think thats probably what would happen for lot of people within this socioeconomic bracket, however "some" (most likely a minority) would still attempt to make changes so they can keep more of the dividend, rather that just spend the money back towards regulated companies, increased prices. Perhaps they may cut down on unnecessary power usage some nights during the week and reduce their power bill et al.



This part here is debatable, the incentive would be to change spending habits so they can keep more of the dividend. It would most likely be this socioeconomic bracket that would make the suggested changes. My problem with this (which I mentioned in the second post down) is that, as more people make life style changes, the dividend would decrease each month. I imagine the benefits would level out eventually and the process would become ossified..



Yeah, I think that too..... Unless the rich value the environment in which case they make changes depending more on their values, not so much the incentives from this proposal.

As aforementioned, I would prefer the revenue was divided up, with a portion going towards alternative technology production and subsidized implementation for companies which adopt it. And the rest being used to shuffle around tax brackets for those who are hit hardest by the increase in prices.

Lets face it, the price hike an emissions tax would cause is going to really hurt the poor. It may even be preferable to eliminate that lower tax bracket entirely.

http://www.climateactionprogramme.org/news/eu_carbon_prices_rising_in_volatile_market/

In recent EU carbon news, anti-carbon trading activists hijacked the European Climate Exchange (ECX) site. Instead of listing carbon credit futures the rolling ticker on the ecx.eu website was replaced with a “Climate on sale: guaranteed profit!” banner. The hackers claimed that the ECX is “susceptible to corporate lobbying,” “generates outrageous profits for big industry polluters,” and is issuing “licences to pollute so they can continue business-as-usual.” It took ECX technical staff a day to restore the webpage.