Carbon dividends a tax everyone can embrace

The economic crisis brought on by the COVID-19 pandemic introduced a myriad of negative impacts on individuals, families, businesses and communities. Certain sectors were hit especially hard, but the woes of record high unemployment and business closures rippled through our economy, leaving widespread financial uncertainty.

To mitigate these effects felt throughout the nation, Congress passed the first stimulus package in the spring, including direct payments to citizens, and another early in 2021.

Throwing money at an economic crisis may not be flawless, but Congress can certainly learn from the bipartisan agreement on putting cash into the hands of struggling citizens. As Congress inevitably confronts another crisis — climate change — cash payments in the form of dividends may play key role in another bipartisan effort.

To stop the devastating effects of a warming planet due to climate change, the world needs to shift away from fossil fuels and greatly reduce greenhouse gas emissions. This major change doesn’t need to cause an economic crisis; the transition can be gradually accomplished by putting a price on carbon and relying on dividends (direct cash payments) to ensure citizens directly benefit from the tax rather than simply paying higher bills.

Increasing taxes typically fuels hesitation and opposition among citizens. But taxing carbon may be a necessary step in mitigating greenhouse emissions. Carbon dividends could offer a bipartisan pathway forward with carbon pricing. At the end of 2020, this market-based strategy has already garnered wide support in the form of the Economists’ Statement on Carbon Dividends. The impressive list of signatories includes Dr. Samuel Andoh and Dr. Sang Yoon, professors of economics at Southern Connecticut State University.

The concept of putting a price on carbon is not new. This cost may take the form of a carbon tax or a cap-and-trade system. A carbon tax applies a fee to a specific unit of carbon dioxide released by the energy industry, expressed in dollars per ton. A cap-and-trade program designates a gradually decreasing limit (cap) over time to the amount of carbon emitted. The trading portion of this strategy allows an emitter to exceed that limit by purchasing extra credits/permits from another emitter who has remained below the limit. These methods have been criticized for their potential to create job loss and their potential to enable a business-as-usual approach to carbon emissions. Dr. Andoh describes these market-based approaches as the least disruptive method of reducing emissions and specifically references recent success stories in the UK, Sweden and Ireland.

The various carbon pricing bills submitted to Congress propose a range of prices per ton, different rates of price increases or limit decreases, and varying fuels targeted for the fee and/or cap. Citizen’s Climate Lobby, a national nonprofit organization, supports the Energy Innovation and Carbon Dividend Act (HR 763). The key to this strategy is the addition of dividends to the proposal. This means that the revenue collected through a carbon tax is equally distributed back to citizens and potentially quells the critique for carbon taxes and caps. Dr. Sang favors the focus on incentives with this approach and foresees this lasting for the long-term. Paying this tax back to the consumer creates a win-win that crosses political party boundaries.

Congress needs to put a price on pollution, just like the price on any other waste we deal with. This tax and dividend system is a transparent and widely supported solution that will keep the economy running and directly benefit households. Just like the cash payments successfully used in one crisis, let’s use a similar methodology to tackle the looming crisis of climate change.