What if every American got paid for being part of the climate change solution? There would be a lot more political support for doing something big, say advocates of "cap-and-dividend," an idea garnering increasing attention as Washington begins to grapple with global warming. The potential cost to consumers and the concept's downright complexity have been big sticking points in the ideas that have been floated so far—including the big Climate Security Act that the Senate is set to begin debating this week. That plan, authored by independent Joseph Lieberman of Connecticut and Republican John Warner of Virginia, would be the same kind of cap-and-trade scheme that Europeans already are using to attempt to control carbon dioxide. Emissions are limited, or capped, but the thousands of companies that produce carbon dioxide have the flexibility to trade emissions rights among themselves. The Warner-Lieberman bill's prospects are not strong, given the difficulty of capturing all the emitters of carbon dioxide in an economy that runs on fossil fuel, the dispute over loopholes, and the specter of even more steeply rising energy prices. But Democratic Sen. Barbara Boxer of California has gained Warner's and Lieberman's support for amendments to the bill that would return 14 percent of the revenue generated to citizens—a step in the direction of cap-and-dividend.
Cap-and-dividend advocates, who believe the Boxer proposal does not go far enough, argue that a well-designed system could become as popular a federal program, and as sacrosanct, as Social Security. The idea, spelled out in a working paper last fall by economists at the University of Massachusetts Political Economy Research Institute, is to force the oil companies, coal companies, and other "first sellers" of fossil fuel to buy federal permits for the right to sell carbon-emitting fuel each year. The revenue from those permit sales would go into a fund that would be distributed as dividends to every U.S. citizen—perhaps in monthly payments directly into their bank accounts. It would be similar to the dividend that Alaska residents receive to share in the revenue of oil exploration in that state.
Under cap-and-dividend, gasoline and coal-fired-electricity prices nationwide would go up, but consumers would be getting cash to help them cope with those rising costs. Former Labor Secretary Robert Reich calls it a "win win" idea that voters will buy. Republican Sen. Bob Corker of Tennessee, a member of the Senate Energy Committee, has said he might support climate legislation if it returns money directly to citizens. No one, though, has been pushing cap-and-dividend harder than socially responsible investment pioneer Peter Barnes, who was cofounder and former president of Working Assets Long Distance, a telephone service that donates to nonprofit organizations. In recent years, he has been writing on climate and trying to come up with ideas to help a free market system deal with protecting the nation's "common wealth," like the atmosphere. Barnes spoke to U.S. News on why giving citizens a dividend—which, based on the Massachusetts research, would be somewhere between $1,200 and $6,000 a year for a family of four—is the best answer so far. Excerpts:
Why don't you like the Warner-Lieberman "cap" on carbon emissions?
Carbon is everywhere. To administer an emissions cap on carbon would be an administrative nightmare, not just for government but businesses and everyone who had to comply with it.
If you require the companies that are the first sellers of fossil fuels—there are only a few hundred of those, like Exxon—to buy permits equal to the carbon content of their fuel, that is relatively easy to calculate. You don't have to monitor any smokestacks or have tens of thousands of businesses filing reports. You simplify the whole thing, and you capture 100 percent of the carbon, and you just crank that valve down, year after year, until you get down to wherever we need to go. Which ultimately may be zero, I believe.
So the government collects money from the oil industry and the coal industry. What happens next?
You divvy it up. One person, one share. Equal dividends wired monthly like Social Security straight into your bank account. I would not make it part of the tax code. [Former Vice President Al] Gore has talked about a payroll tax rebate, and there are other proposals out there. That could work, but you'd only get it once a year, which, for many people who have monthly bills to pay, is not good enough. And also it tends to get lost. For political reasons, if nothing else, you want people to notice the fact that they're getting money back, because they're going to be mad as hell. They already are mad as hell with gas prices and everything going up. So if we're going to raise energy prices even more through a carbon policy, which we have to do, we need to remind people that we're also giving them back some of that money. The only way you can politically sustain higher energy prices is to recycle some of that revenue back to consumers.
Would people still be motivated to use less energy?
It would be a virtuous incentive system. In other words, if you drive a Hummer, you're going to pay a lot more in higher prices, as you should. If you ride the bus, you won't pay so much more. Everybody gets back the same amount. If you're a conserver, you could come out ahead. If you're a guzzler, you lose. Which is appropriate. So you have kind of an income recycling system where the guzzlers are paying the conservers in effect, which is exactly the way it ought to be. You need to keep the incentive to conserve at the same time you need to sustain consumer buying power. The other thing is, we are in a recession now, and people don't have extra money lying around. If we are raising energy prices and not giving any money back, there goes the economy, too.
But in this system, you give the money to consumers instead of investing it in research on energy from sources other than fossil fuels.
I'm a retired businessman, and I believe obviously we need huge amounts of investments in new technologies and conservation and energy efficiency. But that's mostly going to happen in the private sector. It's not so much that we need public investments. We need to send a signal to the market to make the right investments. The market makes plenty of investments now, but they're the wrong investments. There's $120 billion in the pipeline now for new coal-burning plants. But if you send the signal that coal is not the thing of the future, that wind and large-scale solar and all that stuff is where the future lies, then private capital will go there. So it's really a question of getting the market to understand what the real cost of carbon is when you include all the externalities. If you do that, I think you'll solve your investment problem that way.
You don't especially like the energy incentives we have now, like wind and solar tax credits.
Right now, we need tax credits for wind and solar because we don't have the true cost of carbon [figured into coal electricity prices]. If you had a higher cost of carbon, you wouldn't need those subsidies. You should have a cap that really works, that doesn't leak, and have a level playing field. We shouldn't do things like throw huge amounts of money at carbon capture and sequestration. Let the market figure out what are the most cost effective alternatives to carbon; the market can do a fine job of figuring that out. The government trying to pick winners and losers—they're going to end up doing it wrong and waste a lot of our money.
The fundamental problem with Lieberman-Warner and bills like this is that, because they don't recycle the revenue, they are a regressive sales tax on everybody. It's necessary to have a higher carbon price but not necessary to take that money out of the pockets of janitors and nurses and reporters. It will kill the whole thing, and that's the last thing we need. The politicians need to come up with a way of raising carbon prices without screwing the poor and the middle class. And this is, I think, the best way to do it.