Goodbye, Cap and Trade. Hello, Fee and Dividend?

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While piecemeal clean energy targets, feast-or-famine tax incentives and sporadic funding for research have played a significant role in growing U.S. clean energy capacity, it is clear that this strategy is insufficient as a national approach to addressing climate change.

I get it. There is zero chance any climate policy will be passed in the U.S. before the November election. And to be honest, even should President Obama be re-elected for a second term, there is a decent chance an over-arching climate policy would not make it past the Congress. But just because there is an uphill road ahead, that doesn’t mean people responsible for pushing policy ideas into the public sphere can’t start limbering up their backs and strengthening their legs in preparation for that long and difficult push.

One of those ideas re-emerged last month when MSNBC talk-show host Dylan Ratigan invited Treehugger’s Brian Merchant onto his show to talk about Merchant’s piece on the true cost of fossil fuels. The idea? “Fee and dividend.”

The so-called “fee and dividend,” is not new, although it is still relatively unknown. In short, fee and dividend is a revenue-neutral policy mechanism that places a price on carbon which ratchets up over time, spurring investment and a transition to a clean energy economy. The key component of a fee and dividend is that revenue raised would be returned to citizens to help them pay for the inevitable increase in energy prices and other real goods and services.

NASA scientist and climate activist, Dr. James Hansen, has thrown his considerable weight behind fee-and-dividend as the best policy course for addressing climate change in the U.S. According to Hansen:

“If we put a fee that we collected at a rate of $15 a ton of carbon monoxide per year, and increasing $10 a ton each year, at the end of ten years, that would be $115 a ton. The amount collected would be close to $600 billion a year. If you distributed that among all legal residents, that would be between $2000 and $3000 yearly. So, a family with two or more children would get between $6000 and $9000. This would be deposited monthly to their bank account, or if they don’t have one, to a debit card.”

Hansen says this approach would reduce our fossil fuel dependence by 30% in ten years.

Basically, fee and dividend is a carbon tax. I’ve outlined my reasons before why I think a carbon tax is better than cap and trade as a policy mechanism to address climate change and facilitate the transition to a clean energy economy. But you will definitely not see, “because it has a much better sounding name,” among those reasons given.

In terms of political viability, any piece of legislation with the word “tax” in it is pretty much doomed to fail, unless of course, the word “tax” is followed by the words cut, break, credit, or anything of the like. And now that “cap and trade” has been so vilified by Republican opponents, climate change deniers and most segments of the fossil fuel industry, it is virtually dead as a viable policy option, at least under that name. And perhaps, under any name.

However, the carbon tax, as an idea, has yet to be vilified to the same degree as cap and trade. But could a carbon tax fee and dividend fly in the U.S.? Maybe, given the right political context — and the right framing.

The U.S. only need look to our counterparts in the Southern Hemisphere for guidance. Australia’s carbon tax, which passed in a similar political climate that exists in the U.S. and will go into effect in mid-2012, is not called a carbon tax at all. They prefer to call it a “carbon price.”

Substituting fees for taxes may seem like a simplistic approach to finding politically viable ways to fund programs. But over the last decade or so, the Republican Party has made the tactic their policy prescription of choice. And I have a feeling Democrats are on the cusp of giving Republicans a taste of their own medicine.

Article by Timothy Hurst, appearing courtesy ecopolitology.

About Author

Walter’s contributions to CleanTechies over the past 4 years have been instrumental in growing the publications social media channels via his ongoing editorial and data driven strategies. He is the founder and managing director of Sunflower Tax, a renewable energy tax and finance consultancy based in San Diego, California. Active in the San Diego clean technology community, participating in events sponsored by CleanTech San Diego, EcoTopics, and Cleantech Open San Diego, Walter has also been a presenter at numerous California Center for Sustainability (CCSE) programs. He currently serves as an adjunct professor at the University of San Diego School of Law where he teaches a course on energy taxation and policy.

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