Cap and dividend

Last updated August 01, 2022

Cap and dividend is a market-based trading system which retains the original capping method of cap and trade, but also includes compensation for energy consumers. This compensation is to offset the cost of products produced by companies that raise prices to consumers as a result of this policy.^[1]

The process begins with some governments setting aggregate pollution quotas (e.g., for carbon emissions) and selling pollution permits to the public respectively. Polluters are required to buy those credits to match their pollution outputs. Some of the cost producers pay for pollution will result in higher costs for consumers, who as citizens are additionally faced with the environmental costs of the pollution. Under the cap and dividend system, public revenues raised from the sale of pollution credits is rebated to citizens or to consumers as a subsidy for increasing efficiency.^[2]

Overview

The goal of this type of pseudo-tax is to reduce carbon emission rates. This is similar to the cap-and-trade system, with the main difference being that citizens receive dividend payments financed from pollution rents that are publicly captured, as opposed to leaving the value of pollution privileges to become financialized as private assets.^[3] The dividend payments can also finance the addition of incentives designed to encourage consumers to increase energy efficiency, whereas cap-and-trade does not directly involve the consumer. The Healthy Climate Trust Fund is the agency in the U.S. government who are overseeing the cap-and-dividend policy. They will accomplish this by collecting and distributing the funds from the capping process.^[1]

Definitions

Provided are convenient definitions pertaining to cap-and-dividend:

Cap-and-Dividend:
Cap-and-dividend is an approach to reducing greenhouse gas (GHG) emissions. The concept is simple: a limit or cap is placed on greenhouse gases from certain sources; these sources are required to obtain permits to cover their greenhouse gas emissions and dividends from the sale of the permits are returned directly to consumers through rebates or tax credits to compensate for increased energy costs. The cap is typically placed on 'upstream' sources – like fossil fuel suppliers – to cover the carbon content of the fuels they distribute. Some limited trading may be allowed, but typically only among covered sources.^[4]

For definitions on Cap-and-Trade, see emissions trading

History

The idea was first proposed by American entrepreneur Peter Barnes under the name "Skytrust" in his 2001 book, Who Owns the Sky?.^[5] The name was changed in advance of the 2008 elections by Barnes as he began an effort to raise the profile of the idea with a new book, Climate Solutions: A Citizens Guide^[6] and numerous media interviews.^[7]^[8]^[9] He was supported in his work by such groups as On the Commons, a network group which promotes environmental, community-related solutions.^[10] The policy was vigorously debated with Joe Romm calling it "fatally incomplete"^[11] and Time magazine hailing it as a way to "Win the War on Global Warming".^[12]

Creation

The idea was conceived of and first popularized by American entrepreneur Peter Barnes and such groups as On the Commons, a network group which promotes environmental, community-related solutions.^[13]

Van Hollen Cap and Dividend Bill, 2009

Chris Van Hollen (D-Md.) put a bill before Congress on April 1, 2009, pertaining to carbon reductions and including the cap and dividend system. The cosponsors of the bill were Rep Earl Blumenauer [OR-3], Rep Lloyd Doggett [TX-25], Rep Mike Thompson [CA-1], Rep Lynn C. Woolsey [CA-6].^[14]

The goals of the Cap and Dividend Act of 2009 are as follows:

Set robust, scientifically driven emissions reductions targets at 25 percent below 2005 levels by 2020 and 85 percent below 2005 levels by 2050 for covered emissions.
Place an upstream compliance obligation on the first seller of fossil fuels into the U.S. market.
Auction 100 percent of carbon permits.
Include Border Adjustment provisions to protect U.S. manufacturers of carbon-intensive goods from imports of carbon-intensive goods originating in countries without comparable climate legislation and assistance for U.S. exporters of carbon-intensive goods to compete effectively in the international marketplace with carbon-intensive goods originating in countries without comparable climate legislation.
Return 100% of auction proceeds in the form of a monthly Consumer Dividend to every lawful resident of the United States with a valid Social Security number.^[15]

This bill looked to create the Healthy Climate Trust Fund, the potential agency for managing and distributing dividend funds.^[14]

The status of the bill included a referral to House Ways and Means Committee on April 1, 2009, then a referral to House Energy and Commerce Committee also on April 1, 2009, and then on April 2, 2009 a referral to the United States House Energy Subcommittee on Energy and Environment. The bill was reviewed by the United States House Energy Subcommittee on Energy and Environment but it didn't pass as an act.^[14]^[16]

Van Hollen Healthy Climate and Family Security Bill, 2015

Congressman Van Hollen again tried to introduce a Cap and Dividend bill in July 2014, but it did not pass as an act.^[17]^[18]

GOP elder statesmen call on Trump, 2017

Several elder statesmen of the Grand Old Party (GOP), namely former Secretaries of State James Baker and George Shultz and former Treasury Secretary Hank Paulson, co-authored a report with Ted Halstead of Climate Leadership Council; and economists Martin Feldstein and Greg Mankiw; calling upon President Trump to introduce cap and dividend.^[19]^[20]^[21]^[22] Mankiw was interviewed about the use of a carbon tax in the 2016 Leonardo DiCaprio documentary Before the Flood .

Economy

Cap and dividend, like cap and trade, would have had a direct impact on the economy. With a policy like this it will affect not only the major companies that will be taxed but also every household through a chain reaction of product price increases. There will be variations on how much of an impact this policy would have on different geographical areas based on population and how industrialized the area is.^[23]

Effect on companies

Caps will be placed on carbon emissions and every company that use carbon-based fuel to produce some sort of product will have to buy carbon permits. In the cap and dividend policy, every company will have to buy a carbon permit and this differs from the cap and trade policy because there will be no permits given away for free.^[1] The permits, collected by the government, will then be used to account for the dividends given back to the people. However, because of the permits' cost, the companies will be forced to raise the prices of their products so they can still make profit.^[1]^[24] The price increase will be felt by all customers of these various products.

Effect on households

The cost of everything made using carbon-based fuels will increase and will be felt by everyone. However, the people most affected by the price increases are the people emitting more carbon. For example: Someone that drives a Hummer is going to have to buy more gas, which the price is increased as well, than a family that drives a fuel-efficient car.^[23] Every month the government will automatically send a dividend to offset the cost of the high prices. The people that conserve the most and produced the least amount of carbon emissions will get a bigger dividend than a person who has been producing a large amount of carbon emissions.^[1]

Comparison to Cap and Dividend and other Policies

There have been numerous ideas and attempts to reduce the amount of carbon emissions. Policies have been proposed and rejected. One of the policies that has been actually used is known as the cap and trade system. It is currently being used in Europe and has influenced the people living there.^[3]

There are several differences between cap and trade and cap and dividend that ultimately define each of them. A cap is placed on carbon emissions and green house gas (GHG) emissions in both policies. Based on the caps there are carbon emission permits that give the companies the ability to produce more carbon emissions then the cap would permit. These permits are auctioned off to different companies. In the cap and trade system only a set amount are auctioned off and the rest are given away for free. In the cap and dividend system all the permits are auctioned off. In both systems the cost of buying the permits will increase the price of the product made by the companies; oil, electric, and products that make carbon emissions. The thought process behind this is to dissuade the purchase of mass quantities of these products i.e. less carbon/GHG emissions.^[3] While the cap and trade system uses the high prices to control the amount of carbon emissions they do not provide a good incentive to limit carbon emission. Cap and dividend uses the dividends to reward the people that conserve the most. This will benefit the poor the most because of their living situations and this is found to be a problem with many people critiquing the policy.^[14]

Related Research Articles

Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Carbon emission trading for CO₂ and other greenhouse gases has been introduced in China, the European Union and other countries as a key tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.

A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more severe weather events. In this way, they are designed to reduce carbon dioxide (CO^₂) emissions by increasing prices of the fossil fuels that emit them when burned. This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive. In its simplest form, a carbon tax covers only CO₂ emissions; however, it could also cover other greenhouse gases, such as methane or nitrous oxide, by taxing such emissions based on their CO₂-equivalent global warming potential. When a hydrocarbon fuel such as coal, petroleum, or natural gas is burned, most or all of its carbon is converted to CO^₂. Greenhouse gas emissions cause climate change, which damages the environment and human health. This negative externality can be reduced by taxing carbon content at any point in the product cycle. Carbon taxes are thus a type of Pigovian tax.

An ecotax or green tax is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. Such a policy can complement or avert the need for regulatory approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes ; such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.

A Pigovian tax is a tax on any market activity that generates negative externalities. The tax is normally set by the government to correct an undesirable or inefficient market outcome, and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.

Eco-capitalism, also known as environmental capitalism or (sometimes) green capitalism, is the view that capital exists in nature as "natural capital" on which all wealth depends. Therefore, governments should use market-based policy-instruments to resolve environmental problems.

A carbon credit is a generic term for any tradable certificate or permit representing the right to emit a set amount of carbon dioxide or the equivalent amount of a different greenhouse gas (tCO₂e).

The energy policy of the United Kingdom has achieved success in reducing energy intensity, reducing energy poverty, and maintaining energy supply reliability to date. The United Kingdom has an ambitious goal to reduce carbon dioxide emissions for future years, but it is unclear whether the programs in place are sufficient to achieve this objective. Regarding energy self sufficiency, the United Kingdom policy does not address this issue, other than to concede historic energy self sufficiency is currently ceasing to exist. With regard to transport, the United Kingdom historically has a good policy record encouraging public transport links with cities, despite encountering problems with high speed trains, which have the potential to reduce dramatically domestic and short-haul European flights. The policy does not, however, significantly encourage hybrid vehicle use or ethanol fuel use, options which represent viable short term means to moderate rising transport fuel consumption. Regarding renewable energy, the United Kingdom has goals for wind and tidal energy. The White Paper on Energy, 2007, set the target that 20% of the UK's energy must come from renewable sources by 2020.

The Pigou Club is described by its creator, economist Gregory Mankiw, as "an elite group of economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes."

Cap and Share was originally developed by Feasta. It is a regulatory and economic framework for controlling the use of fossil fuels in relation to climate stabilisation. Convinced that climate change is a global problem and that there is a need to cap and reduce greenhouse gas emissions globally, the philosophy of Cap and Share maintains that the earth’s atmosphere is a fundamental common resource. Consequently, it is argued, each individual should get an equal share of the benefits from the limited amount of fossil fuels that will have to be burned and their emissions released into the atmosphere in the period until the atmospheric concentration of greenhouse gases has been stabilised at a safe level.

Carbon pricing also known as cap and trade (CAT) or emissions trading scheme (ETS) is a method for nations to reduce global warming. The cost is applied to greenhouse gas emissions in order to encourage polluters to reduce the combustion of coal, oil and gas – the main driver of climate change. The method is widely agreed and considered to be efficient. Carbon pricing seeks to address the economic problem that emissions of CO₂ and other greenhouse gases (GHG) are a negative externality — a detrimental product that is not charged for by any market.

The Carbon Pollution Reduction Scheme was a cap-and-trade emissions trading scheme for anthropogenic greenhouse gases proposed by the Rudd government, as part of its climate change policy, which had been due to commence in Australia in 2010. It marked a major change in the energy policy of Australia. The policy began to be formulated in April 2007, when the federal Labor Party was in Opposition and the six Labor-controlled states commissioned an independent review on energy policy, the Garnaut Climate Change Review, which published a number of reports. After Labor won the 2007 federal election and formed government, it published a Green Paper on climate change for discussion and comment. The Federal Treasury then modelled some of the financial and economic impacts of the proposed CPRS scheme.

In environmental law and policy, market-based instruments (MBIs) are policy instruments that use markets, price, and other economic variables to provide incentives for polluters to reduce or eliminate negative environmental externalities. MBIs seek to address the market failure of externalities by incorporating the external cost of production or consumption activities through taxes or charges on processes or products, or by creating property rights and facilitating the establishment of a proxy market for the use of environmental services. Market-based instruments are also referred to as economic instruments, price-based instruments, new environmental policy instruments (NEPIs) or new instruments of environmental policy.

Carbon emission trading An approach to limit climate change by creating a market with limited allowances for CO2 emissions

Emission trading (ETS) for carbon dioxide (CO₂) and other greenhouse gases (GHG) is a form of carbon pricing; also known as cap and trade (CAT) or carbon pricing. It is an approach to limit climate change by creating a market with limited allowances for emissions. This can lower competitiveness of fossil fuels and accelerate investments into low carbon sources of energy such as wind power and photovoltaics. Fossil fuels are the main driver for climate change. They account for 89% of all CO₂ emissions and 68% of all GHG emissions.

The American Clean Energy and Security Act of 2009 (ACES) was an energy bill in the 111th United States Congress that would have established a variant of an emissions trading plan similar to the European Union Emission Trading Scheme. The bill was approved by the House of Representatives on June 26, 2009, by a vote of 219–212, but was never brought to the floor of the Senate for discussion or a vote. The House passage of the bill was the "first time either house of Congress had approved a bill meant to curb the heat-trapping gases scientists have linked to climate change."

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A carbon fee and dividend or climate income is a system to reduce greenhouse gas emissions and address climate change. The system imposes a carbon tax on the sale of fossil fuels, and then distributes the revenue of this tax over the entire population as a monthly income or regular payment.

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Green economy policies in Canada are policies that contribute to transitioning the Canadian economy to a more environmentally sustainable one. The green economy can be defined as an economy, "that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities." Aspects of a green economy would include stable growth in income and employment that is driven by private and public investment into policies and actions that reduce carbon emissions, pollution and prevent the loss of biodiversity.

Carbon pricing in Canada is implemented either as a regulatory fee or tax levied on the carbon content of fuels at the Canadian provincial, territorial or federal level. Provinces and territories of Canada are allowed to create their own system of carbon pricing as long as they comply with the minimum requirements set by the federal government; individual provinces and territories thus may have a higher tax than the federally mandated one but not a lower one. Currently, all provinces and territories are subject to a carbon pricing mechanism, either by an in-province program or by one of two federal programs. As of April 2021 the federal minimum tax is set at CA$40 per tonne of CO₂ equivalent, set to increase to CA$50 in 2022 and CA$170 in 2030. In some provinces, the tax is higher, such as British Columbia which has a CA$45 tax.

References

1 2 3 4 5 Boyce, James K. (August 2009). "Cap and Dividend: A State-By-State Analysis" (PDF). Archived from the original (PDF) on 2011-07-27. Retrieved 2010-11-30.{{cite journal}}: Cite journal requires |journal= (help)
↑ Barnes, Peter. "How cap and dividend works" . Retrieved 2010-11-30.{{cite journal}}: Cite journal requires |journal= (help)
1 2 3 Barnes, Peter. (December 2008). "Cap and Dividend, Not Trade: Making Polluters Pay". doi:10.1038/scientificamericanearth1208-20 . Retrieved 2010-11-30.{{cite journal}}: Cite journal requires |journal= (help)
↑ (ACMWG), Agricultural Cultural Market Working Group (2009). "Cap-and-Dividend and Agriculture" (PDF). Retrieved 2010-11-30.{{cite journal}}: Cite journal requires |journal= (help)
↑ Barnes, Peter (2001). Who owns the sky? : our common assets and the future of capitalism. Washington, DC: Island Press. ISBN 1-55963-854-0. OCLC 46590035.
↑ Barnes, Peter (2008). Climate solutions : a citizen's guide. White River Junction, Vt.: Chelsea Green Pub. ISBN 978-1-60358-005-2. OCLC 174112741.
↑ Revkin, Andrew C. "Paying the Cost of Climate Control". Dot Earth Blog. Retrieved 2021-03-23.
↑ McDougall, J. S. (2008-07-22). "Reducing Emissions: Cap-and-Say What?". HuffPost. Retrieved 2021-03-23.
↑ "A Climate Change Proposal With Cash". U.S. News. 2008-06-02.
↑ de Place, Eric (5 June 2009). "Van Hollen's Cap and Dividend". Sightline Institute. Retrieved 30 Nov 2010.{{cite journal}}: Cite journal requires |journal= (help)
↑ "Peter Barnes' Cap & Dividend plan is fatally incomplete". ThinkProgress . Retrieved 2019-01-18.
↑ "How to Win the War on Global Warming". Time . Retrieved 2019-01-18.
↑ de Place, Eric (5 June 2009). "Van Hollen's Cap and Dividend". Sightline Institute. Retrieved 30 Nov 2010.{{cite journal}}: Cite journal requires |journal= (help)
1 2 3 4 Representatives, House of (2009-04-21). "Bill Summary & Status, 111th Congress (2009 - 2010), H.R.1862" . Retrieved 2010-12-09.{{cite journal}}: Cite journal requires |journal= (help)
↑ "Van Hollen Introduces the Cap and Dividend Act of 2009". archive.is. Archived from the original on 12 December 2012. Retrieved 8 February 2017.{{cite web}}: CS1 maint: bot: original URL status unknown (link)
↑ "H.R. 1862 (111th): Cap and Dividend Act of 2009". GovTrack. Civic Impulse. Retrieved 8 February 2017.
↑ Trout, Kelly (30 July 2014). "Congressman Chris Van Hollen introduces innovative bill to fight climate change while aiding middle class Americans". Chesapeake Climate Action Network. Retrieved 8 February 2017.
↑ "H.R. 1027 (114th): Healthy Climate and Family Security Act of 2015". GovTrack. Civic Impulse. Retrieved 8 February 2017.
↑ Baker, James; Shultz, George (8 February 2017). "A Conservative Answer to Climate Change". The Wall Street Journal . Dow Jones & Company . Retrieved 8 February 2017.
↑ Milman, Oliver. "Republican elders call for new national carbon tax to replace federal regulations". The Guardian . Retrieved 8 February 2017.
↑ Feldstein, Martin; Mankiw, Greg; Halstead, Ted (8 February 2017). "A Conservative Case for Climate Action". The New York Times . Retrieved 8 February 2017.
↑ Crooks, Ed. "Republican Grandees Make Case for US Emissions Tax". The Financial Times . The Nikkei . Retrieved 8 February 2017.
1 2 Barnes, Peter. "How Cap and Dividend Works" . Retrieved 2010-12-03.{{cite journal}}: Cite journal requires |journal= (help)
↑ Boyce, James K. (1 November 2007). "Cap and Dividend: How to Curb Global Warming While Protecting the Incomes of American Families". Peri Working Papers. doi:10.7275/1282812 . Retrieved 8 February 2017.