Cap-and-dividend


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.

Advertisements

With the Waxman-Markey cap-and-trade bill faltering, the lesser-known Cantwell-Collins cap-and-dividend bill is gaining traction as a more politically viable approach to climate protection legislation.

Sponsored by U.S. Senators Maria Cantwell (D-Wash.) and Susan Collins (R-Maine), the measure brings a concept into the mainstream that economists have discussed for a few years now. The main provisions:

•  It would place an absolute annual cap on carbon emissions for the United States as a whole. This cap could and should be a lot lower, but it’s a start.

•  It would require aspiring polluters to bid for a limited number of auctioned “carbon permits.” (In many of the previous climate bills kicked around Congress, these permits were simply given away to the biggest historical polluters.)

•  It would return three-quarters of the auction revenue, on an equal per capita basis, to all U.S. residents in the form of an annual dividend check. These dividends have been estimated on the order of $1,000 per person every year.

•  It would invest the remaining one-quarter of revenues in clean energy research, assistance to workers put at a special disadvantage by emissions reductions, and the like.

Research from the Political Economy Research Institute at the University of Massachusetts-Amherst shows that for all but the richest U.S. families, these benefit checks would more than compensate for increased energy costs (see a series of studies by Boyce and Riddle: a state-by-state analysis, “keeping the government whole,” and impacts by income level).

Even The Economist gives Cantwell-Collins a rave review. Yes, it’s the “free market” solution, or at least the solution some free-market types like to hype that way. But even for economists who find the “free” market to be tiresomely overrated (I’ll take a domesticated market over a feral one any day), Cantwell-Collins looks like a great first step towards an adequate U.S. climate policy. While I’m not at all convinced that dividends are the only way to use carbon revenues well, this is light-years ahead of the “giveaways” in cap-and-trade policies that are essentially a handout to big business.

Is it too optimistic to hope that the populist sensibility of cap and dividend (checks for everyone!) will create a badly needed bridge across the chasm between center (often mistakenly called “left”) and right in Congress?

For more on cap and dividend in general and Cantwell-Collins in particular, see this terrific series of theREALnews interviews with Jim Boyce.