A new study on the economic impacts of Cantwell-Collins’ proposed “CLEAR Act” – the cap-and-dividend climate regulation that I wrote about a few weeks ago – shows that, in every state, the average household will come out ahead. Their extra costs in energy bills will be more than made up for by an annual dividend check. Some states, however, would have a greater net benefit than others: Oregon and Vermont would receive the biggest net benefits; Indiana and Delaware, the smallest.
This is one of the key obstacles to making a cap-and-dividend bill palatable to majorities in Congress. Somehow it’s not enough that working- and middle-class families stand to benefit from this climate policy – the idea that some states would benefit more could turn out to be a deal breaker.
Authors Jim Boyce and Matt Riddle present an innovative solution to this disparity: state-specific dividends calculated to give the median household in each state the same net benefit. Under this plan, the per capita annual dividend check would be $262 in Oregon and $352 in Indiana, but the net benefit to the median household in each would be $65, due to differences in energy consumption between the two states. With any luck, that could be just enough sugar (for Congress) to make the medicine go down.
A policy of tailoring dividends to energy consumption, however, should probably stop there, or it risks sliding down a slippery slope. Some readers may wonder, why not a specific dividend for every income class in every state? How about for every household (so nobody loses out due to the new policy)? Making a dividend check that matches each household’s cost from climate legislation would entirely negate its effectiveness. The idea is supposed to be that households will choose to use less fuel and buy less energy-intensive products because these things will cost more under a carbon tax or tradable permit system. But if each household were given a check for exactly its added costs, nobody’s purchasing behavior would change at all.
In order for a “market-based” climate policy to work, we all have to respond to price signals that tell us it’s worthwhile to conserve energy. Too much tailoring of any climate regulation could weaken those signals.
Public Goods: The economics of climate, equity and shared prosperity 
March 17, 2010 at 10:22 pm
Are there really Senators and Reps who would oppose the bill based only on disproportionate advantage (counted literally in the tens of dollars) of other state’s median households? Good Lord that’s pathetic. Will then they demand that the median household adjustment be further adjusted to take into account different cost of living from state to state? As you point out, the potential slippery slope is very slippery and very steep.
Another problem from too much tinkering is undermining the marvelous simplicity of the CLEAR Act. To whatever small extent these things matter, it’s a refreshing situation when a major law can be easily explained–without ignoring important nuances in the process. Look at the healthcare reform muddle: opponents have made a great deal of hay out of the fact that the bill(s) are thousands of pages long, hidden in which are surely many loopholes and special-interest favors that would frustrate even the staunchest Democrat. That’s been a similar case with the other, far inferior, climate bills on offer. The CLEAR Act has the great advantage of being, well, clear about what it does and how it does it. Preseving that clarity is valuable for sake of popular education on the issue.