Carbon Tax and Dividend Scheme Offers a New Way Forward on Climate Policy

Boxer-Sanders legislation is a smart policy, but odds of passage are long

Daniel Adel

When the American Clean Energy and Security Act (AKA the Waxman-Markey comprehensive climate bill) died in the Senate in 2010, some people blamed the failure on the inherent weaknesses of the legislation: The cap and trade system was too complicated and had too many giveaways for big polluters, critics said. At that time, two Senators — Democrat Maria Cantwell of Oregon and Republican Susan Collins of Maine — floated a different policy proposal that they said would be far simpler. Known as “cap and dividend,” their plan would have put a tight lid on greenhouse gas emissions and then directed the revenues from the program to citizens via a rebate program.

Photo by Shadia Fayne Wood/350.org

Now another pair of senators are trying to take a second bite of the cap-and-dividend apple.

On February 14 — one day after 48 climate protesters were arrested at the White House and three days before what was billed as “the largest climate rally in US history” took place on the National Mall — Bernie Sanders, an Independent from Vermont, and California Democrat Barbara Boxer introduced comprehensive climate and energy legislation. Two separate bills, the Climate Protection Act and the Sustainable Energy Act, would put a price on carbon and use some of the money to invest in renewable energy technologies and energy efficiency.

Passage of the twin bills seems unlikely. The House, of course, remains in the grip of climate change science denialists. And in a recent interview, Senator Sanders called the White House’s support for the measures “lukewarm.” But Senators Sanders and Boxer hope the ambitious bill can at least energize a public discussion on climate change.

“The United States Congress is way behind where the American people are on this issue,” Senator Sanders when he unveiled the legislation. “And we’re going to win this fight when millions of people stand up and say, ‘You have got to do something for my kids, and grandchildren, and for my business — you cannot ignore this planetary crisis.’”

“No big oil company can sit down in their living room and tell them Superstorm Sandy didn’t happen, or droughts didn’t happen, or fires, or this bark beetle, or all these other things they see happening in front of their eyes,” Boxer added. “We think the community is the key.”

Heads of leading environmental organizations joined the two Senators to launch the bill. “This bill establishes a really important principle,” said 350.org founder Bill McKibben at the event. “And that’s the fact that if the sky belongs to anybody it belongs to us and not the fossil fuel industry.”

The Climate Protection Act puts a price on carbon and methane emissions. Starting at $20 per ton, this fee would rise at 5.6 percent a year over a ten-year period. The fee on the largest fossil-fuel polluters affects fewer than 3,000 entities nationwide but covers 85 percent of the greenhouse gas emissions in the US, according to the Congressional Research Service. The Congressional Budget Office estimates the fee could raise $1.2 trillion in revenue over 10 years and reduce greenhouse gas emissions approximately 20 percent from 2005 levels by 2025. The Brookings Institution said recently that a carbon tax could reduce greenhouse gas emissions and lessen federal budget shortfalls.

Much of the revenues would be returned to citizens via a dividend program. Modeled after Alaska’s oil dividend, 60 percent of the carbon fee revenue will be rebated to US citizens. The summary of the Boxers-Sanders legislation argues that the rebate program “is the most progressive way to ensure that if fossil fuel companies jack up prices, consumers and families can offset cost increases on fuel and electricity.” It’s also smart politics. Rebating revenues to ordinary citizens helps to inoculate the legislation against complaints that a price on carbon will take too big of a bite out of families’ paychecks.

The second part of the legislative push, the Sustainable Energy Act, would slash fossil fuel subsidies while encouraging energy efficiency and renewable energies such as wind, solar, geothermal and biomass. It also protects communities by requiring that drillers engaged in fracking must comply with the Safe Drinking Water Act and disclose chemicals they use.

Alex Bowen, the Principal Research Fellow at the Grantham Research Institute on Climate Change and the Environment, said the Boxer-Sanders legislation looks “politically savvy.”

“There is a big debate among economists about the virtues of a carbon tax compared with a cap-and-trade system,” Bowen told Earth Island Journal. “Under certainty, they would have more or less the same impact. But there is uncertainty about the difficulty of reducing emissions, the damages from emissions, and the outlook for the economy.” The Climate Protection Act “would fix a carbon fee,” by “letting firms decide how much to emit,” he said. Cap-and-trade would fix the overall emissions level and would allow firms “to find the cheapest way of reducing their emissions to meet the cap, thereby setting a carbon price.”

When asked if a carbon tax would be more efficient in curbing greenhouse gas emissions than cap-and-trade, Bowen said: “It is often argued that a tax would have lower administrative costs than cap-and-trade and in that sense would be more efficient. Both work through establishing a carbon price, so are likely to be more efficient than regulatory interventions mandating specific reductions for particular sources of emissions.”

Bowen said “a tax has the advantage that it maintains an incentive to cut emissions through innovation even when the initial target for reductions has been achieved. Firms seem to prefer a relatively predictable carbon price for their planning purposes, which favors tax over cap and trade.”

Although the Boxer-Sanders legislation might benefit from the lesson of the Waxman-Markey bill, the National Journal asserted that “it’s almost certain” that the legislation “will be dead on arrival in the Republican House.” That rejection, however, “could actually help the White House. In his State of the Union address, Obama declared that if Congress won’t act on climate change, he will. The failure of a high-profile bill would create the opportunity for the administration to roll out its new regulations.

The bill’s failure could also galvanize public support and set the bar for ambitious climate legislation, as the two Senators hope. “This is a gold-standard bill,” says Boxer. “Every once in a while we have them.”